President Obama held a meeting this past week at the White House with officials from eight U.S. financial regulators, including SEC Chair Mary Jo White and Federal Reserve Chair Janet Yellin, during which he stressed the importance of completing regulations under the Dodd-Frank Act intended to prevent risk taking behaviors within the financial system, including executive compensation limitations. The meeting appeared intended to encourage the regulators to complete Section 956 of the Dodd-Frank Act, which requires the eight federal financial agencies to jointly promulgate rules covering incentive-based compensation that would discourage individuals from taking inappropriate risks that could lead to a material financial loss in addition to issuing special rules governing financial institutions with over $1 billion in total assets. Although the regulators first proposed rules for Section 956 in March 2011, they have been unable to complete the rules, reflecting other rulemaking priorities and difficulty in agreeing how to finalize the requirements. The Center submitted comments on the proposal, cautioning that the rules were too broad and unnecessarily transfer board authority over company strategy, compensation, and oversight to the federal government. Additionally, the Center warned the proposed rule could lead to a one-size-fits-all approach to enforcement. However, since that point there has been little discussion of a timeline for a final rule demonstrating the difficulty of generating a consensus from eight very different and large regulators each charged with different missions and objectives.
The incentive compensation rules in Dodd-Frank Section 956 represents one of many incomplete Dodd-Frank rules. According to law firm Davis Polk, after nearly four and a half years only 55 percent of the 280 Dodd-Frank rulemakings have been completed.