Rule changes arrive at a tough time for banks as they have the potential to increase fixed costs
Many bankers in the US have been dealt a body blow, just as their firms looked to reduce their expenses in an effort to offset a fall in revenue.
That’s because a new ruling is coming into place as one of the last major elements of the Dodd-Frank Act which will see top employees having to wait for a minimum of four years to collect most bonuses and firms forced to set a seven year period in which they can reclaim bonuses from those deemed to have taken inappropriate risks.
A Bloomberg report outlines how the new ruling could see salaries increase, but bonuses be reduced as banks are forced to curb excessive risk taking.
According to its report, each of the big six lenders in the US, with the exception of Wells Fargo, reduced expenses during the first quarter of the year due to stiff new regulations and a fall in bond trading. The likes of JPMorgan Chase and Co, Citgroup, Morgan Stanley and Bank of America have all lowered their compensation costs while Goldman Sachs is said to be undergoing its most significant cost-cutting program in years as it reduces bankers’ spending on airfares and dismisses support staff.
Most banks have been planning for tough new compensation guidelines: however, there are still several rules to be established with the potential that many employees, particularly those who have control of a large amount of capital, could be affected. In particular, long-term incentive awards that are tied to goals over three years normally pay out as soon as the period ends – but now, 60 per cent would have to be held for four years after this performance period has been concluded.
Speaking to the newswire, John Burr, the global leader of the financial services practice at Boyden, outlined concerns that the rule changes may reduce incentives for new talent to come on board. Meanwhile, Ian Levin, of Shulte Roth & Zabel, told Bloomberg that the rules could make it expensive for firms to hire staff from competitors.
The rules, however, only apply to performance incentive pay – they would not affect compensation connected to discretionary bonuses, equity awards and others tied to long-term employment. As such, some banks may choose to increase salaries in an effort to boost the overall package although that would lead to higher fixed costs.
That’s because a new ruling is coming into place as one of the last major elements of the Dodd-Frank Act which will see top employees having to wait for a minimum of four years to collect most bonuses and firms forced to set a seven year period in which they can reclaim bonuses from those deemed to have taken inappropriate risks.
A Bloomberg report outlines how the new ruling could see salaries increase, but bonuses be reduced as banks are forced to curb excessive risk taking.
According to its report, each of the big six lenders in the US, with the exception of Wells Fargo, reduced expenses during the first quarter of the year due to stiff new regulations and a fall in bond trading. The likes of JPMorgan Chase and Co, Citgroup, Morgan Stanley and Bank of America have all lowered their compensation costs while Goldman Sachs is said to be undergoing its most significant cost-cutting program in years as it reduces bankers’ spending on airfares and dismisses support staff.
Most banks have been planning for tough new compensation guidelines: however, there are still several rules to be established with the potential that many employees, particularly those who have control of a large amount of capital, could be affected. In particular, long-term incentive awards that are tied to goals over three years normally pay out as soon as the period ends – but now, 60 per cent would have to be held for four years after this performance period has been concluded.
Speaking to the newswire, John Burr, the global leader of the financial services practice at Boyden, outlined concerns that the rule changes may reduce incentives for new talent to come on board. Meanwhile, Ian Levin, of Shulte Roth & Zabel, told Bloomberg that the rules could make it expensive for firms to hire staff from competitors.
The rules, however, only apply to performance incentive pay – they would not affect compensation connected to discretionary bonuses, equity awards and others tied to long-term employment. As such, some banks may choose to increase salaries in an effort to boost the overall package although that would lead to higher fixed costs.
