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Practice Management > Compensation and Fees

Nationwide CFO Takes on Executive Comp Regs

By Arthur D. Postal

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WASHINGTON BUREAU — Nationwide Mutual Insurance Company has asked federal financial services regulators to exclude insurers with small thrifts from proposed compensation limits.

Mark Thresher, chief financial officer (CFO) at Nationwide, Columbus, Ohio, writes in a comment letter on a proposed excessive compensation rule that most of the company’s assets are related to insurance, not banking, and that the company is already “subject to significant regulatory oversight and monitoring by state insurance departments.”

The definition of institutions covered by the proposed rule should be revised to include insurers only if the insurers are classified as being systemically significant, Thresher says.

Dodd-Frank Act

Nationwide and dozens of other commenters are reacting to a compensation rule proposed by a group of agencies that includes the Office of the Comptroller of the Currency, the Federal Reserve Board, the Federal Deposit Insurance Corp., the Office of Thrift Supervision and the U.S. Securities and Exchange Commission (SEC).

The Dodd-Frank Wall Reform and Consumer Protection Act requires the agencies to develop regulations to discourage executives and others at financial institutions from taking executive risks.

Another Dodd-Frank Act provision requires a new Financial Stability Oversight Council to determine which non-bank financial firms are important enough to the stability of the financial system that they should get extra oversight from the Federal Reserve Board.

The proposed excessive comp rule would apply to “larger covered financial institutions” — institutions with $50 billion or more in assets — whether or not they were desginated as systemically significant. The definition of covered institutions would include mortgage groups, credit unions and institutions regulated by the SEC as well as banks and thrifts.

At those institutions, the proposed rule would bar any incentive-based compensation arrangements that regulators believe to be excessive or that “could expose the institution to inappropriate risks that could lead to material financial loss.”

Executive officers would have to defer a portfion of incentive-based compensation.

Company boards would be responsible for implementing the regulation.

Because the agencies are issuing the comp requirements in the form of a rule, rather than as guidance, regulators would have the authority to take enforcement action against an institution if it violated the requirements.

Members of Congress developed the Dodd-Frank excessive comp provision in the wake of reports that Joseph Cassano, the president of the financial products unit at American International Group Inc. (AIG), New York (NYSE:AIG), had earned a total of $162 million during the 8 years ending in 2007 while accumulating a level of credit default swap risk that AIG was unable to support.

Thresher: Mutuals Are Different

In the Nationwide letter, Thresher says the federal financial services agencies’ “attempt to regulate ‘excessive compensation’ is far too broad and should not be included in the final regulation.”

If the agencies cannot leave the provision out, they should clarify the provision by giving “specifically defined terminology and guiding principles,” Thresher says.

“In particular, Nationwide does not believe that excessive compensation–standing alone–poses a direct correlation to compensation that encourages significant or excessive risk.” Thresher says.

Nationwide is also concerned that the concepts included in the proposed rule relating to excessive compensation “are far too vague and will be incredibly difficult to ascertain,” Thresher adds. “For example, the proposed rule specifies that the agencies will consider the compensation history of covered person and other individuals with comparable expertise in order to determine whether the covered person’s compensation is excessive.”

The agencies do not say how they will determine what is comparable in this regard, or how they will “determine what is comparable for purposes of compensation practices at comparable institutions,” Thresher says.

“Because Nationwide is a mutual insurance company, there is not always access to the compensation practices of other like entities as data is not typically publicly available,” Thresher says.

Other FDIC coverage from National Underwriter Life & Health:

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