That is why, as I will explain in a moment, we include an emphasis on sound corporate governance measures in our proposed guidance. Indeed, supervisory initiatives can reinforce the impetus for change already coming from shareholders and other market participants.
By requiring banking organizations to incorporate a thorough, risk-appropriate approach to incentive compensation arrangements, supervisors can help address concerns that these firms face a kind of collective action problem, which may make a firm reluctant to rectify misaligned arrangements for fear that other firms will poach the best employees with promises of substantial near-term bonuses.