3525 / Did the Dodd-Frank Act place any limitations on the deductibility of executive compensation?

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (DFA) added new law to prohibit any covered financial institution (those not already covered by TARP restrictions) from offering any type of incentive-based compensation arrangement that encourages inappropriate risk by providing “excessive compensation, fees or benefits,” or would lead to “material loss” to the covered financial institution.

A “covered financial institution” is one that has assets greater than $1 billion and is:

(1)   a depository institution or depository holding institution;

(2)   a broker-dealer;

(3)   a credit union;

(4)   an investment advisor;

(5)   the Federal National Mortgage Association;

(6)   the Federal Loan Mortgage Corporation; or

(7)   any other financial institution that federal regulators determine should be treated as a covered financial institution.

Many of these new prohibition rules could look very much like those already in place for TARP-covered financial institutions. It is important to see the final regulations for the details of the operation of this broad and vague compensation limiting prohibition. However, in 2017, the President ordered a review of all of Dodd Frank with regard to regulations, existing or yet to be issued.¹ As of the date of this publication, most of the focus has been on current regulations already issued, like the CEO pay ratio regulations.