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Fed to police pay policies at 28 firms

The Federal Reserve yesterday outlined plans to police 28 US banks&rsquo; pay policies to ensure that they do not encourage reckless decisions.<br /><br />The attack on Wall Street compensation is expected to apply to any employee able to take risks that could imperil an institution, not just those top staff whose large bonuses have been the target of public outrage.<br /><br />The Fed&rsquo;s rules come just a day after it emerged that pay tsar Kenneth Feinberg will slash compensation for the 25 highest-paid employees at seven firms that received &ldquo;exceptional taxpayer bailouts&rdquo;. <br /><br />The Fed&rsquo;s guidelines are designed to reform compensation at firms outside of Feinberg&rsquo;s jurisdiction and will be enforceable under its existing powers. <br /><br />They will aim to curb the type of excessive risk taking that led to the recent financial crisis.<br /><br />The Fed will review pay policies at&nbsp; banks and wants to veto them if it feels they encourage risk-taking by executives or traders.<br /><br />Fed chairman Ben Bernanke said: &ldquo;The Federal Reserve is working to ensure that compensation packages appropriately tie rewards to longer term performance and do not create undue risk for the firm or the financial system.&rdquo; <br /><br />Bernanke added that certain compensation packages &ldquo;led to misaligned incentives and excessive risk-taking, contributing to bank losses and financial instability.&rdquo;<br /><br />The 28 banks would also be forced to develop their own plans to ensure that pay and bonuses did not encourage undue risk-taking. <br /><br />Bernanke said the new strict policies would not follow a &ldquo;one-size fits all&rdquo; approach, but be based on a case-by-case basis.<br /><br />The rules are also believed to be tough on so-called &ldquo;golden parachutes&rdquo; which allow top&nbsp; executives to walk away with hefty payouts- regardless of the state of the firm.