Government’s Captain Ahab has Wall Street’s next “whale” in his sights.

Federal regulators last month unveiled a new proposal aimed at curbing big Wall Street bonuses thought to have played a role in encouraging the risky behavior that led to the 2008 financial meltdown.

The key provisions in the proposal — an update of a 2011 proposal that was never finalized — would delay large portions of incentive bonus payouts for executives for four years, and make such payouts subject to “clawbacks” for up to seven years if recipients are deemed to have engaged in misconduct or fraud.

The rules would apply to employees the government has dubbed “significant risk-takers,” or individuals who are in a position to put the largest institutions “at risk of material financial loss.” The designation calls to mind rogues like trader Bruno Iksil, who in 2012 was revealed to have racked up trading losses at JPMorgan Chase’s London investment office that ultimately added up to more than $6 billion, earning him the nickname the “London Whale.”

However, unlike the earlier version, the new plan targets not only senior executives at financial institutions, but also lower-level employees who handle large sums of money, a provision that could potentially include tens of thousands of industry professionals — from investment bankers to traders.

That is sparking concerns that financial workers could abandon banks and take their talents to less-regulated institutions.

“It may cause some lower-level traders to think twice about what they do,” says Wayne Guay, a professor of accounting at Wharton who specializes in executive compensation and corporate governance. “There’s lots of places they can go, hedge funds, private equity, venture capital – they could do lots of things that would allow them to earn the money they want to earn and not have it tied up for such a long period of time.”

The deferral and clawback elements in the proposal are similar to the standards major Wall Street firms and large U.S. banks have already adopted for top managers. But the new regulatory proposal would make them a requirement and lengthen the time they apply from the industry standard of three years.

“These clawbacks in principle seem clever, interesting and appropriate, and I’m not opposed to them. But the mechanics of getting them right is challenging.”–Wayne Guay

The proposal also splits the regulations into three tiers aimed at different size institutions, with the toughest provisions for the largest banks.

The strictest limits would be placed on the top executives at banks with assets of $250 billion or more, who would see three-fifths of their incentive bonuses delayed for four years, while leaders of institutions with $50 billion to $250 billion in assets would wait for half their bonuses for three years. Companies with assets between $1 billion and $50 billion would face fewer restrictions, mainly because they are not individually as vital to the financial system.

“Supervisory oversight focuses most intensively on large banking organizations because they are significant users of incentive-based compensation and because flawed approaches at these organizations are more likely to have adverse effects on the broader financial system,” the proposal states.

No Clear Connection

Yet it’s not at all settled that incentive pay was a significant cause of the 2008 crisis, explains Martin Conyon, a senior fellow at the Center for Human Resources at Wharton, who studies corporate governance. “There’s been plenty of consultant research and academic research that has looked at the structure of incentives, in banking in particular, and whether there was a cause or link between those incentives and the subsequent financial crisis. And it’s not clear – it hasn’t been demonstrated in ways that would pass muster.”

Unlike rules put in place in the European Union, the proposal — one of the final sets of rules called for in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act — does not cap executive pay. That’s because the issue the law focused on was incentives for taking risk, or how bankers and traders are paid, not how much.

And that’s why a swath of lower-level employees at Wall Street firms would also be included. The new rules would encompass the top 5% of employees who are the highest earners and get at least one-third of their pay from incentives, as well as those who have authority over 0.5% of a bank’s capital and get bonuses that amount to at least one-third of their pay.

“There have been lots of changes to governance … lots of changes to disclosure … lots of changes to compensation over the years. I worry a little that we’re not seeing the big picture.”–Wayne Guay

Not everyone is skeptical that such measures could help. “This is a good proposal, since in financial firms, it’s not just top executives who can have large effects on firm value, but also rank-and-file employees,” notes Alex Edmans, a former Wharton professor now at the London Business School.

Indeed, the 5% rule could apply to 52,000 workers at the six biggest U.S. banks – JPMorgan, Bank of America, Wells Fargo, Citigroup, Goldman Sachs and Morgan Stanley – according to the The Wall Street Journal, although it’s not clear how many of those employees’ incentive bonuses amount to one-third of their pay.

The average Wall Street bonus in 2015 was $146,200, down 9% from the prior year amid a market slump, according to a report from New York State Comptroller Thomas DiNapoli. The average salary including bonuses was $404,800.

The move is aimed at giving banks the ability to take back incentive bonus pay from executives and others whose misconduct or fraud hurts the firm. Such “clawback” provisions were not included in the 2011 version of the plan, although versions of them have been included in many company compensation programs.

But Guay questions whether a seven-year claw-back period is really necessary. “When firms do restatements of their financials — and I think that’s most of the time that would trigger these clawbacks — it’s two, three or four years back. It’s pretty rare that they do restatements six or seven years out.”

In addition, when looking back several years, its may be difficult to figure out what the bonuses would have been if the restated earnings had been in place — fraud and other manipulations aren’t usually the reason for restatements, Guay points out. “A lot of restatements are due to the fact that financial reporting regulations, particularly for banks, are very complicated. A lot of people have this notion that restatements are fraud, and that’s not correct. Some are, but most are not.”

He also notes that even when firms are caught manipulating their financials, the settlements with the Securities and Exchange Commission typically do not involve admitting wrongdoing. That could make it more difficult to then try to go after the bonuses paid to the people involved.

“These clawbacks in principle seem clever, interesting and appropriate, and I’m not opposed to them,” Guay adds. “But the mechanics of getting them right is challenging.”

Finding Loopholes

Although the proposal is tougher than the 2011 version, it doesn’t reach the strict levels already enacted in the European Union. In addition to capping executive pay, EU standards defer incentive bonuses for a decade, for example. And the proposed rules apply only to incentive-based pay, not to straight salaries, stock awards that are not tied to incentives or discretionary bonuses. That leaves a number of loopholes for banks to deploy if they want to work around the rules.

U.S. banks with large operations in Europe, for example, already used some work-arounds to maintain pay levels for some employees following the 2013 rules aimed at curbing incentive bonuses. Both JPMorgan and Morgan Stanley have since granted larger salaries and fixed cash bonuses (which aren’t covered in the EU rules) to employees who would otherwise have seen long deferrals on their pay.

Guay says that banks use an array of compensation schemes already, including relying heavily on equity-based provisions. “They’ve already got these other compensation vehicles in place. I could see them tweaking the plans to downplay the parts that are regulated and bumping up some other things.”

“It’s all very sage-like and it looks very wise and important. But where’s the evidence that any of this will actually work?”–Martin Conyon

The proposals were released by the National Credit Union Administration, acting for six agencies working together drawing up the reforms. The Federal Reserve, Securities and Exchange Commission, Federal Deposit Insurance Corp., Treasury Department and Federal Housing Finance Agency are also involved in drafting and enforcing the rules.

The government is accepting comments on the proposal through July 22. (The complete text may be found here.)

It’s important, Guay notes, to remember that the compensation changes are part of an array of other regulations put forth by these different agencies in the years since the economic crisis. “There have been lots of changes to governance … lots of changes to disclosure … lots of changes to compensation over the years. I worry a little that we’re not seeing the big picture.”

Conyon points out that the rules for financial executive pay alone are roughly 275 pages long, on top of myriad other rules put in place under Dodd Frank. “To be kind, the various rules that Congress promulgated and required various agencies to implement have been extremely complex.” So complex, in fact, that it has taken six years to put them in place.

He questions whether the efforts reflect more of an effort to do “something” in response to the 2008 crisis, without confirming whether any of the steps will have the right effect. In fact, some research that shows that the rules adopted in the EU could increase, rather than decrease, risk taking.

“It’s all very sage-like and it looks very wise and important,” Conyon adds. “But where’s the evidence that any of this will actually work?”