April To Be The Cruelest Month For Wall Street Payouts

On Wall Street, showing them the money is going to take a little longer.

April may be a cruel month for bankers when compensation rules get handed down that month, this time governing the length of time typically used to “hold back” at least a significant chunk of bonuses – and the conventional wisdom holds that it will be a period lasting longer than three years.

That extended wait time, reported The Wall Street Journal on Thursday, was signaled by unnamed people who are reportedly familiar with the matter.  The holding period, albeit longer than three years in the likeliest cases, will also be shorter than the decade that has been the hallmark of European firms.  So there’s that scant consolation.  In addition, there is still uncertainty surrounding the carveout of just how much will be retained, and draft rules seem a bit onerous – at least to Wall Streeters.  Original proposals five years ago centered on a 50 percent holdback.

All of this comes against a backdrop where the lifeblood of those bonuses — trading activity – has been on the wane.  One advantage for the firms themselves, according to The Journal, is that they have more of the bonus in the coffers, which means that they can “claw” back that amount, should it be determined that an employee’s actions (read: risk taking in pursuit of profits and thus bigger bonuses, usually) have hurt the firm.  Regulators – plugging up some unresolved issues part and parcel of the Dodd-Frank legislation of several years ago — want to broaden the reach of such holdbacks by broadening the purview of risky behavior, to include, for example, the amount of money that is handled by an employee.

What would be among the triggers for clawbacks? Restating financial results, for one thing.  The rules mentioned above will apply to firms with assets of $50 billion or more.  Firms much smaller by way of comparison, with a threshold of $1 billion on the books, will be required to submit reports annually to regulators.

Perhaps no surprise: Bank regulators, stretching back to 2010, had instituted their own guidelines, according to The Journal, and said risk-taking activities had been curtailed, with positive results, so much so that the “regulatory gap” has been filled. Yet if all of that gets rolled back, Wall Street firms will gird for talent flight.

There is time for commentary and rumination as the proposal needs to pass muster with a series of regulatory bodies, from the Federal Reserve to the FDIC to the SEC and others.