July 25, 2017

OCC Issues Consent Order Reminding Bank Directors of Executive Compensation Responsibilities


On July 21, 2017, the Office of the Comptroller of the Currency (OCC) released a consent order (Order)1 that serves as a cautionary tale for the banking industry. The Order, agreed to by and between the OCC and a director and former senior vice president (Respondent) of a small national bank in Wisconsin, reminds bank boards of directors of their fiduciary duties with respect to executive compensation and the consequences of breaching those duties.

In detailing the longstanding affiliation of the Respondent with the bank, the Order stated that the Respondent had served in various operational roles for 32 years and as a director of the bank since 2005. The Order identifies the Respondent director's three-year service on the board's executive compensation committee as the relevant period leading to the issuance or the Order, and specifically outlines the following findings:

  • The Respondent failed to oversee or control the use of bank funds by its former President, Chief Executive Officer (CEO), and Chairman of the bank's board (Chairman) for his personal expenses despite knowing that he had previously used bank funds for personal expenses;
  • The Respondent failed to ensure that disinterested and independent directors determined and approved the compensation of the bank's former President, CEO, and Chairman, and allowed him to receive excessive compensation; and
  • The Respondent failed to recuse herself from voting on the bank's former President, CEO, and Chairman's compensation even though she had a conflict of interest because he was personally indebted to the Respondent and her husband in an amount exceeding $2 million.

Based on these findings, the OCC concluded that the Respondent engaged in conduct satisfying 12 U.S.C. 1818(i) and ordered Respondent to pay a civil money penalty in the amount of $5,000.

Agency enforcement actions relating to compensation issues may become more common in the coming years as banks continue to report an uptick in regulatory inquiries and examination findings relating to executive and incentive compensation. This trend has developed even in the face of recent reports that some of the federal banking agencies are likely to postpone consideration of currently proposed regulations regarding incentive compensation required under the Dodd Frank Act. Banks should utilize this trend and the Order as a reminder to periodically review compensation arrangements and compensation standards at their bank to ensure their boards are adequately fulfilling their fiduciary duties.  Such reviews should critically analyze executive and incentive compensation arrangements and seek to ensure bank and board policies governing such arrangements meet regulatory expectations. In addition, boards should periodically inquire about and analyze any relationships board compensation committee members may have with senior management to be able to confirm the independence of the committee members.

© 2017 Arnold & Porter Kaye Scholer LLP. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

  1. In the Matter of Sylvia C. Thoe, Director, First National Bank, Waupaca, Wisconsin, Office of the Comptroller of the Currency Consent Order #2017-047 (Jun. 21, 2017).

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