NYT editorial: It May Make Them Think Twice

Financial regulators certainly took their time, but proposed new rules to curb bankers’ bonuses are a welcome step toward changing a compensation culture that encouraged irresponsible risk-taking and helped set off the financial crisis.

The new rules, outlined by the F.D.I.C. last week, would require banks with more than $50 billion in assets to defer at least half of their top executives’ bonuses for at least three years. If the banks’ bets went bad, the executives would lose the unpaid portions. The same criteria would apply to the bonuses of traders and other employees whose activities could put their banks at risk.

The sound idea is that bankers’ remuneration should match the risks they take on. That should help discourage them from doing deals that produce big short-term profits (and up until now big immediate bonuses) only to fall apart a few years down the line.

Banks would have to file annual reports on their incentive compensation, and regulators could demand changes to pay structures. Smaller banks would not have to meet specific targets on deferred bonuses, but they would have to ensure that incentive compensation aligned pay with risk, and report to regulators yearly.

(More here.)

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