The Dodd-Frank Reform Act opened the door for federal regulators to attack 'lavish Wall Street bonuses', and the Securities and Exchange Commission accepted the invitation - although it was not unanimous.  The Commission's 3 Democratic commissioners voted yes, while the 2 Republican commissioners said no - contending the SEC was overstepping its authority.

On Wednesday, the Commission voted to propose new rules that, for the first time, would require Wall Street firms to file detailed accounts of their bonuses, and give the SEC authority to ban any awards it deemed excessive.  The rules cover payments to executive officers and certain rank-and-file employees.

Justification for the highly unusual move by regulators is tied into the realization that big banks play a huge in the economy, which poses a systemic risk to the system, and in 2008 pushed the economy to the brink.  The SEC plan closely resembles proposed regulations already published by the FDIC.  Eventually, 7 federal agencies will adopt similar regulations. 

    Along Party LInes.   NYTimes reporter Ben Protess notes the party-line vote is noteworthy in that it mirrors a similar partisan battle playing out on Capitol Hill.  Republican lawmakers have threatened to slash the SEC’s budget and, in fact, have effectively frozen significant spending by the SEC and the CFTC.  Republican Commissioner Troy Paredes - formerly an academician at Wash U. School of Law - argued that the agency was "not well-equipped to prescribe rules that dictate the specifics of how individuals must be paid."  Even Chairman Mary Schapiro acknowledged that the SEC might tweak its proposal down the road.

"This is an area where we want to be very attuned to unintended consequences.  As with any such undertaking, there is a challenge involved in finding common means to appropriately address Congress’s mandate."  -- Chairman Mary Schapiro.

    Significant Changes Unlikely.   It's unlikely that serious changes will be made to the SEC proposal - on 2 counts.  First, Dodd-Frank left regulators little wiggle room.  Second, there's precedence for the SEC proposal, in that other regulatory agencies have proposed similar rules. 

"There could be a lot of pushback, but I don’t know how much leeway there is.  It’s like standing in front of a train - it’s coming."  --  David Lynn, former SEC CorpFin lawyer who's now a Morrison & Foerster partner. 

The rule proposals are particularly timely because, just 2 years after the crisis, big Wall Street paydays have staged a comeback.  Wall Street’s overall paychecks rose 6% in 2010, according to the NY State Comptroller’s office.  But cash bonuses are down, replaced with larger stock and other deferred compensation.  The SEC in January enacted "Say On Pay" rules that give shareholders a nonbinding vote on corporate salaries, bonuses and golden parachutes.  The SEC plan for brokers, advisers and other financial institutions goes even further.   [NYT Dealbook, 3/2]