A new study confirms that large financial firms have made substantial revisions to incentive plans in ways that run contrary to practices sought by shareholders, including scaling back maximum performance payouts to 125% or 150% of target, to comport with risk mitigation requirements of the Federal Reserve. The research by Compensation Advisory Partners notes that 14 of 23 large financial-services firms studied now have a maximum payout of 125% or 150% of target, compared to just six last year, and only five of the 23 now have upside of 200%. The also study explains that: “The Federal Reserve is opposed to formulaic plans that can lead to substantial payouts when performance is strong, but does not necessarily understand that discretionary plans can lead to comparable payouts. A potentially unintended consequence of this point of view is to encourage companies to reduce the transparency of incentive plan design leading to reduced line-of-sight for executives.” The study notes a number of areas where companies have resisted the Fed’s ideal pay designs, such as maintaining relative performance measures in their long-term incentive plan designs even though the Fed is generally opposed. In a Wall Street Journal article this week highlighting the studies, Carol Bowie of ISS was paraphrased as stating that “Some banks might use the Fed's guidance to replace performance-based pay with fixed salaries that could reward sluggish performance.” In conclusion, the study notes that over time engagement and dialog will “allow companies to strike the appropriate balance between pay for performance alignment with shareholders” and the Federal Reserve’s valid concerns regarding risk mitigation.