The Feds are finally cracking down on Wall Street bonuses

They get at one key reason so many people took so many risks in the run-up to the financial crisis of 2008: Sure, trades might have been risky, but if they soured, bonuses would already have been paid and people would have moved on to new jobs.

The incentive was to take risk to get paid now, regardless of the risk later on.

The 2010 Dodd-Frank financial reform legislation aimed to change that by requiring a group of financial regulators to write rules tying incentive pay -- bonuses -- to longer-term performance.

On Thursday, the National Associations of Credit Unions proposed a rule that would allow for bonuses to be taken back from bankers and traders even after they are delivered -- “clawed back” in regulatory jargon. Employees would have to forfeit their bonuses if they took too much risk, violated internal guidelines, breached regulations or caused the firm’s reputation to suffer. The rule would also require that at least 60 percent of bonus pay be deferred for between four and seven years, depending on the size of the firm.

Five other financial regulators, including the Federal Reserve and the Securities and Exchange Commission, are expected to offer similar regulations.

Importantly, the proposed rule would cover not just senior executives but also “significant risk-takers.” At many big financial firms, there are senior traders or bankers who responsible for significant risk taking but are not, for regulatory purposes, considered senior executives. For example, some commodities or mortgage traders have been paid more in a given year than the chief executive of the same firm.

http://www.msn.com/en-us/money/markets/the-feds-are-finally-cracking-down-on-wall-street-bonuses/ar-BBs4GZ2?li=BBnbfcN&ocid=edgsp