FR4027_20220408_omb

Supporting Statement for the
Recordkeeping Provisions Associated with the
Guidance on Sound Incentive Compensation Policies
(FR 4027; OMB No. 7100-0327)
Summary
The Board of Governors of the Federal Reserve System (Board), under authority
delegated by the Office of Management and Budget (OMB), has extended for three years,
without revision, the Recordkeeping Provisions Associated with the Guidance on Sound
Incentive Compensation Policies (FR 4027; OMB No. 7100-0327). The Guidance on Sound
Incentive Compensation Policies (the Guidance) is an interagency publication that is intended to
assist banking organizations in designing and implementing incentive compensation
arrangements that do not encourage imprudent risk-taking and that are consistent with the safety
and soundness of the organization. The Guidance contains voluntary recordkeeping activities.
With respect to organizations regulated by the Board, the voluntary Guidance applies to U.S.
bank holding companies, savings and loan holding companies, state member banks, Edge and
agreement corporations, and the U.S. operations of foreign banks with a branch, agency, or
commercial lending company subsidiary in the United States (collectively, banking
organizations).
The estimated total annual burden for the FR 4027 is 210,920 hours.
Background and Justification
The Board, along with the Office of the Comptroller of the Currency (OCC), the Federal
Deposit Insurance Corporation (FDIC), and the subsequently abolished Office of Thrift
Supervision (collectively, the agencies), promulgated the Guidance in 2010. In the Federal
Register notice1 announcing the Guidance, the agencies noted that the financial services
industry’s incentive compensation practices contributed to the financial crisis that began in 2007.
Banking organizations often rewarded employees for increasing the firm’s short-term revenue or
profit without adequate recognition of the risks the employees’ activities posed for the firm. The
agencies noted that certain compensation practices can encourage employees at various levels of
a banking organization to undertake imprudent risks that adversely affect the risk profile of the
firm.
The Guidance aims to help protect the safety and soundness of banking organizations and
promote the improvement of incentive compensation practices throughout the banking industry.
In addition, the Guidance is consistent with the Principles for Sound Compensation Practices
adopted by the Financial Stability Board (FSB) in April 2009, 2 as well as the Implementation
Standards for those principles issued by the FSB in September 2009. 3
1

75 FR 36395 (June 25, 2010).
See FSF Principles for Sound Compensation Practices (April 2, 2009), available at https://www.fsb.org/wpcontent/uploads/r_0904b.pdf.
3
See FSB Principles for Sound Compensation Practices: Implementation Standards (September 25, 2009), available
at https://www.fsb.org/wp-content/uploads/r_090925c.pdf.
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Description of Information Collection
The Guidance is based on three key principles. These principles provide that incentive
compensation arrangements at a banking organization should:
1. Provide employees incentives that appropriately balance risk and reward ,
2. Be compatible with effective controls and risk-management, and
3. Be supported by strong corporate governance, including active and effective oversight by
the organization’s board of directors.
The recordkeeping provisions of the Guidance are contained within principle 2 and
principle 3.
Compatibility with Effective Controls and Risk Management
Pursuant to Principle 2 of the Guidance, a banking organization’s risk-management
processes and internal controls should reinforce and support the development and maintenance of
balanced incentive compensation arrangements. Principle 2 states that banking organizations
should create and maintain sufficient documentation to permit an audit of the organization’s
processes for establishing, modifying, and monitoring incentive compensation arrangements.
Additionally, global systemically important bank holding companies and banking organizations
subject to Category II-IV enhanced prudential standards under Regulation YY – Enhanced
Prudential Standards (12 CFR Part 252) and foreign banking organizations required to form an
intermediate holding company under Regulation YY should maintain policies and procedures
that (1) identify and describe the role(s) of the personnel, business units, and control units
authorized to be involved in the design, implementation, and monitoring of incentive
compensation arrangements, (2) identify the source of significant risk-related inputs into these
processes and establish appropriate controls governing the development and approval of these
inputs to help ensure their integrity, and (3) identify the individual(s) and control unit(s) whose
approval is necessary for the establishment of new incentive compensation arrangements or
modification of existing arrangements.
Strong Corporate Governance
Pursuant to Principle 3 of the Guidance, banking organizations should have strong and
effective corporate governance to help ensure sound compensation practices. Principle 3 states
that a banking organization’s board of directors should approve and document any material
exceptions or adjustments to the organization’s incentive compensation arrangements established
for senior executives.
Respondent Panel
The FR 4027 panel comprises banking organizations, as defined above.

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Time Schedule for Information Collection
The recordkeeping provisions in the Guidance are ongoing. The documentation
associated with the Guidance is maintained by each institution; therefore, it is not collected or
published by the Federal Reserve System.
Public Availability of Data
The documentation set forth in the guidance is a recordkeeping provision, and no data
related to this information collection is made available to the public by the Federal Reserve.
Legal Status
The recordkeeping provisions of the Guidance are authorized pursuant to the Board’s
examination and reporting authorities, located in sections 9, 11(a), 25, and 25A of the Federal
Reserve Act (12 U.S.C. §§ 325, 248(a), 602, and 625), section 5 of the Bank Holding Company
Act of 1956 (12 U.S.C. § 1844), section 10(b) of the Home Owners’ Loan Act (12 U.S.C. §
1467a(b)), and section 7(c) of the International Banking Act of 1978 (12 U.S.C. § 3105(c)), and
by section 39 of the Federal Deposit Insurance Act, which authorizes the Board to prescribe
compensation standards (12 U.S.C. § 1831p-1(c)). Because the recordkeeping provisions are
contained within guidance, which is nonbinding, they are voluntary. 4
Because the incentive compensation records would be maintained at each banking
organization, the Freedom of Information Act (FOIA) would only be implicated if the Board
obtained such records as part of the examination or supervision of a banking organization. In the
event the records are obtained by the Board as part of an examination or supervision of a banking
organization, this information is considered confidential pursuant to exemption 8 of the FOIA,
which protects information contained in “examination, operating, or condition reports” obtained
in the bank supervisory process (5 U.S.C. § 552(b)(8)). In addition, the information may also
constitute nonpublic commercial or financial information, which is both customarily and actually
treated as private by the respondent, and thus may be kept confidential by the Board pursuant to
exemption 4 of the FOIA (5 U.S.C. § 552(b)(4)).
Consultation Outside the Agency
The Board has consulted with the FDIC and OCC and confirmed that there will be no
revisions to the guidance.
Public Comments
On September 1, 2021, the Board published an initial notice in the Federal Register (86
FR 49033) requesting public comment for 60 days on the extension, without revision, of the
FR 4027. The comment period for this notice expired on November 1, 2021. The Board did not
receive any comments. The Board adopted the extension, without revision, of the FR 4027 as
4

See 12 CFR 262.7.

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originally proposed. On December 10, 2021, the Board published a final notice in the Federal
Register (86 FR 70499).
Estimate of Respondent Burden
As shown in the table below, the estimated total annual burden for the FR 4027 is
210,920 hours. The Board estimates that respondents would take, on average, 40 hours each year
to maintain policies and procedures to monitor incentive compensation arrangements. The Board
also estimates that, in the case of a new institution becoming subject to the guidance, it would
take 480 hours each year for large institutions and 80 hours each year for small institutions.
These recordkeeping provisions represent 2.8 percent of the Board’s total paperwork burden.

FR 4027
One-time implementation:
Large institutions
Small institutions
Ongoing maintenance
Total

Estimated
number of
respondents5

Annual
frequency

1
1
5,259

1
1
1

Estimated
Estimated
average hours annual burden
per response
hours
480
80
40

480
80
210,360
210,920

The estimated total annual cost to the public for the FR 4027 is $12,750,114.6
Sensitive Questions
This collection of information contains no questions of a sensitive nature, as defined by
OMB guidelines.
Estimate of Cost to the Federal Reserve System
Since records are maintained at the banking organization, the estimated cost to the
Federal Reserve System is negligible.

5

Of these respondents, 3,629 are considered small entities as defined by the Small Business Administration (i.e.,
entities with less than $600 million in total assets), https://www.sba.gov/document/support--table-size-standards.
6
Total cost to the public was estimated using the following formula: percent of staff time, multiplied by annual
burden hours, multiplied by hourly rates (30% Office & Administrative Support at $21, 45% Financial Managers at
$74, 15% Lawyers at $71, and 10% Chief Executives at $102). Hourly rates for each occupational group are the
(rounded) mean hourly wages from the Bureau of Labor and Statistics (BLS), Occupational Employment and
Wages, May 2021, published March 31, 2022, https://www.bls.gov/news.release/ocwage.t01.htm. Occupations are
defined using the BLS Standard Occupational Classification System, https://www.bls.gov/soc/.

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