By Dan Freed and David Henry
NEW YORK (Reuters) – Wall Street bankers and traders are scrutinizing a new regulatory proposal that could restrict their pay for longer periods of time and require them to give back bonus money if deals, loans or trades they work on go bust.
After regulators released the proposal on Thursday, the industry was quickly abuzz trying to figure out whose pay might be affected, employees and recruiters said.
“Everybody’s talking about it and trying to figure out what all this entails,” said Michael Karp, CEO of recruiting firm Options Group.
Big U.S. financial firms have already made significant changes to the way they pay employees since the 2007-2009 financial crisis, when they were slammed for allowing top executives and money-losing traders to leave with golden parachutes.
Structures vary from place to place, but Wall Street now broadly defers more pay, uses more stock in pay packages and inserts claw-back provisions in more employment contracts.
The toughest restrictions proposed this week would apply to high-ranking executives and top earners at the biggest financial institutions, ranging from JPMorgan Chase & Co to Fannie Mae and Freddie Mac. But they may also apply to lower-ranking traders, bankers and loan underwriters who qualify as “significant risk-takers.”
To fall into that category, an employee must be among the highest paid, have a bonus that is at least one-third of total pay, or have “authority” over at least 0.5 percent of a firm’s capital.
An earlier proposal released in 2011 resulted in more than 10,000 comments. They ranged from one by Frank Kolwicz, a private citizen who bemoaned “Wall Street greed fueled by… outrageous pay practices,” to another from the Financial Services Roundtable industry group, which sought clarity on the definition of terms like “covered institution.”
While the new proposal is stricter, pay consultants and other sources said it may not move the needle much, given how much change has already taken place. For instance, some firms already defer bonuses beyond the four-year timeframe regulators propose.
The proposal may simply underscore disgruntlement among bankers and traders who already feel their pay and business is being micromanaged by regulators.
A Wall Street bank executive who spoke on condition of anonymity said it only changes the degree to which pay is restricted, not the approach to paying employees altogether. He did not believe it would affect morale or recruiting any more than the wide assortment of rules and regulations already in place.
“I don’t think there will be any sort of shock waves as a result of this,” said Rebecca Glasman, a search consultant at Russell Reynolds Associates. “I haven’t heard of anyone who would not be expecting or at least emotionally preparing for this type of regulatory change.”
(Additional reporting by Lisa Lambert and Olivia Oran; writing by Lauren Tara LaCapra; Editing by Dan Grebler)