GUEST COMMENT: The US pay regime is a lot more lenient than in Europe
Rules to restrict bankers pay in the US were yesterday outlined by the Federal Deposit Insurance Corporation (FDIC).
Jon Terry, remuneration partner at PwC, commented:
Rules to restrict bankers pay in the US were yesterday outlined by the Federal Deposit Insurance Corporation (FDIC).
The international banking industry has been waiting to see the extent to which US regulators would follow recently introduced European rules restricting pay and bonuses. The FDIC has said its proposals should better align US compensation standards with those which have been adopted internationally.
Although the proposed rules will apply to both US banks and branches of overseas banks, investment advisers, credit unions and broker-dealers, the reality is that the US regime is likely to be more lenient not least because the proposed rules will not apply to compensation earned in 2010.
The most stringent element of the rules, deferring at least 50% of pay for at least three years, will apply only to those large institutions with over $50 billion in consolidated assets and to a much smaller group of people: executive officers, including CEOs, executive chairmen and heads of business units.
As a result, US banks will be at a significant advantage to their EU competitors, where deferrals already apply both to smaller organisations and to a wider group of employees covering all "risk takers".
While US rules prohibiting excessive compensation will apply to similar groups of risk takers, there is likely to be no immediate impact on these individuals, with regulators instead likely to review pay in the context of the approach taken by the industry as whole on an ongoing basis.
There is however common ground between the EU and US on rules around disclosure of pay policies, and also that remuneration for risk takers must be overseen by the company board or an appropriate committee.
Given there are several regulators in the US covering different financial services firms who need to jointly issue regulations, there may yet be some variation between draft and final rules.
Only when the final regulations are in place later this year will the extent they deviate from EU regulations become clear. In the meantime US and other non-EU banks remain at a clear advantage for recruitment and retention, although senior bankers may think twice about heading to the States in the hope of a more favourable regime now that they have confirmation that similar deferral rules will be introduced there.
