New York State Department of Financial Services Issues Guidance on Incentive Compensation in the Banking Sector

14 October 2016
View Client Update

Key takeaways

  • The New York State Department of Financial Services issued a guidance memorandum earlier this week requiring regulated New York-chartered banking institutions to align their incentive compensation practices with the general principles laid out in the Interagency Guidance on Sound Incentive Compensation Policies issued in 2010.
  • The guidance requires that incentive compensation arrangements, at a minimum: (1) appropriately balance risk and rewards; (2) be compatible with effective controls and risk management; and (3) be supported by effective corporate governance. Incentive compensation at regulated institutions should not be tied to employee performance indicators, such as the number of accounts opened or the number of products sold per customer, without effective risk management, oversight and control.
  • Regulated banking institutions appear to be required to immediately comply with the Department’s guidance on incentive compensation arrangements.