Often, companies adopt more aggressive compensation strategies hoping to maximize their competitiveness in the market. To do so, they will adopt practices that "sound" compliant but in actual practice clearly violate compensation rules. In other words, they have contracts that say one thing but practices that in fact violate the rules. For instance, companies will adopt compensation plans that list permissible subjective factors justifying bonuses, but in fact merely look to profitability to provide a bonus to loan officers. Alternatively, some companies choose to have no policy-in effect to remain silent-and adopt practices that violate the rules. An example would be compensation plans that contain no procedures for adjustment, that will ultimately and routinely be changed based upon the average overage of the loans closed by the originator.
Such practices are in all likelihood the worst thing a company could do. The practices are illegal-the fact that they are not expressly so does not negate or minimize their impermissible nature. In addition to being illegal, they are easily discovered. Any comparison of deals and ultimate compensation will reveal an obvious and undeniable correlation. Finally, auditors detecting actual practices in these circumstances will consider them not only impermissible, but also an affirmative effort at circumventing the rules through intentional deception. Indeed, it is these types of practices that auditors intend to crack down on the hardest.
Instead, companies searching for aggressive strategies would do best to create transparent policies and practices that may be aggressive-even highly aggressive-but defensible. Given the ambiguity of the rules, there is a good deal of latitude that can be taken in interpreting the compensation laws in a defensible manner. As long as the practices and policies have a legitimate basis, auditors tend to be fairly lenient even if they conclude that the compensation practices are wrong-especially in cases involving new, ambiguous, laws and regulations. The bottom line is that if you are going to try to stretch the law-and I am not saying you should do that-I suggest adopting transparent practices that are unlikely to result in a fully punitive response from regulators.
