Fed plan would police banks' pay for 1st time

WASHINGTON — The Federal Reserve for the first time would police banks' pay policies to make sure they don't encourage excessive risk taking under a plan the Fed is drafting.The proposal is the Fed's latest response to criticism that it failed to crack down on lax lending, reckless gambles and other practices that led to the financial crisis.The central bank's more activist stance carries a risk, though: It could intensify accusations from lawmakers and other critics that the Fed is overstepping its bounds and should be reined in.Under its proposal, the Fed would review — and could reject — pay policies that could cause too much risk taking by executives or other employers, according to people familiar with the plan. The Fed would not actually set compensation, however, those people said.They spoke on condition of anonymity because the proposal has not been finalized.Yet the proposal is far reaching. The Fed would review salaries, bonuses and other compensation for CEOs and other senior management, the people with knowledge of the proposal said.It also would cover certain employees, such as traders, who can take big risks on behalf of a firm, they said. And it would cover some workers whose compensation could affect their risk-taking, such as loan officers making mortgages, they added.The Fed could examine not only the compensation level but also how it's structured, such as when it is awarded, the sources said.The goal is to make sure banks' pay policies don't encourage top managers or other employees to take gambles that could endanger a company, the broader financial system or the economy. The failure of many banks to closely monitor risk and limit compensation that might encourage too much risk contributed to the financial crisis.The proposal, in the works since early this year, could be unveiled within weeks, people familiar with the initiative said. The public, the industry and others would be able to comment on the proposal, which could be revised. A final plan, subject to approval by

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