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Fed gives banks deadline to submit exec pay proposals

November 03, 2009|Tomoeh Murakami Tse and Neil Irwin | Tse and Irwin write for the Washington Post.

NEW YORK AND WASHINGTON — The Federal Reserve on Monday gave Wall Street's top bankers a Feb. 1 deadline to submit proposals for how they plan to improve their pay practices, people with knowledge of the meetings said.

At the sessions, Fed regulators told leaders of 28 of the largest financial firms that the central bank was serious about enforcing the executive pay guidelines it proposed late last month. At the Fed's request, the bank executives were accompanied by members of their boards' compensation committees.

At one of the meetings, in New York, William C. Dudley, president of the Federal Reserve Bank of New York, told Goldman Sachs Group Inc. Chief Executive Lloyd Blankfein, JPMorgan Chase & Co. Chief Executive Jamie Dimon, Morgan Stanley Chief Executive John Mack and others that he wanted the banks to begin incorporating the new practices as they set year-end bonuses in the coming months -- even though the rules have not yet been finalized.

Regulators stressed that the Fed was not looking to cap overall pay but instead wanted the banks to structure bonuses in ways that do not encourage excessive risk taking, according to more than half a dozen people who attended the meetings or were briefed on them. Fed officials urged the banks to do more to align pay with long-term performance, such as by awarding a significant portion of pay in stock, these people said.

Dudley told the executives that he expected the guidelines to be formalized by year's end.

After the New York session, executives at three of the banks said that nothing they had heard raised alarms. Federal regulators, who have concluded that the financial crisis was caused in part by inappropriate pay practices on Wall Street, have held numerous discussions with large banks about restricting executive pay.

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