The FDIC is seeking comment on ways to adjust the fees it charges banks for deposit insurance based on risks posed by employee compensation programs.
"The FDIC does not seek to limit the amount which employees are compensated, but rather is concerned with adjusting risk-based deposit insurance assessment rates to adequately compensate the Deposit Insurance Fund for the risks inherent in the design of certain compensation programs," the FDIC stated in the Federal Register today. "Some poorly designed compensation structures reward employees based on short-term results without full consideration of the longer-term risks to the firm," the deposit insurance agency said later in the piece. "In so doing, they fail to align individual incentives with those of the firm's other stakeholders, including shareholders and the FDIC."
A 2009 review of bank failures found that in 17 out of 49 cases, or 35% of the time, employee compensation practices were a contributing factor, the FDIC said.
Sound bank compensation programs, according to the FDIC, include such safety features as: a "significant portion" of pay in the form of restricted, non-discounted stock; large awards of company stock vested only over several years and subject to a clawback mechanism; and administration by a committee of independent board members advised by independent pay consultants.