Deferral requirement for executive officers. In a shift from current principles-based regulation, with the Proposed Rule, the Agencies would regulate the structure of incentive-based compensation. At least 50% of the incentive-based compensation of executive officers (as defined by the Proposed Rule) at the largest covered financial institutions (those with at least US$50 billion in assets) must be deferred for at least three years, with vesting occurring no more rapidly than ratably over the deferral period. During the deferral period, the amount of compensation deferred is subject to downward adjustment to reflect the actual losses of the covered financial institution or other aspects of performance that are realised or become better known during that period.

Flexible approach outside of deferral requirement. With the exception of the executive officer deferral requirement, the Proposed Rule gives each institution the flexibility to fashion its own incentive-based compensation arrangements in a manner that is consistent with the purposes of the Proposed Rule. The Proposed Rule allows each Agency to enforce the rules as appropriate, and to recognise the differences in the size and scope of the covered institutions.

Expanded scope of regulatory oversight. The incentive-based compensation arrangements at many financial institutions are already subject to regulatory oversight. The Proposed Rule, however, would extend compensation restrictions to certain or other institutions, including SEC regulated broker-dealers and investment advisers. Moreover, the Agencies propose to exercise their discretion to cover certain other financial institutions (including the US operations of non-US banks with US banking offices) beyond those specifically identified as covered financial institutions in the Dodd-Frank Act.

Multijurisdictional reach. Because the financial institutions covered by the Proposed Rule include sufficiently large US branches of non-US banks and non-US subsidiaries of US covered financial institutions, the possibility exists for potentially conflicting regulation of incentive-based compensation paid to employees of multinational institutions.

Expanded board role in compensation. Perhaps most importantly, the Proposed Rule would expand the burdens and responsibilities of the boards of directors and board committees of covered financial institutions. In particular, the boards or applicable board committees of each of the largest covered financial institutions would be required to review and approve compensation arrangements for the individuals beyond the executive officer group whose compensation arrangements represent the greatest potential risk to an institution, and the board or applicable board committee would ultimately be responsible for ensuring those arrangements comply with the Proposed Rule.