On 8 May 2020, the Financial Stability Board (FSB) published the key takeaways from the workshop it hosted on 13 November 2019 for banks, insurance and asset management firms to discuss their experiences in implementing the FSB Principles for Sound Compensation Practices and their Implementation Standards.
The workshop focused on:
- Assessing the effectiveness of compensation policies – the discussion considered the steps firms are taking to assess the effectiveness of compensation policies and practices they have established and implemented.
- Use of data by firms as part of compensation practices – participants considered how firms use data to implement compensation policies and practices.
- Regulatory and legal issues – the discussion focused on the extent to which legal barriers and conflicts between elements of the Principles and Standards and regulatory frameworks exist, and possible steps to address these.
- Developments on compensation and risk alignment research – participants discussed academic research and empirical evidence on the effectiveness of compensation and risk alignment.
In terms of risk alignment, the key takeaways notes that firms expressed the view that efforts to prevent and address instances of misconduct mean that non-financial metrics play an increasingly important role in compensation schemes. Firms also reported on the difficulty of choosing appropriate metrics against which to measure non-financial outcomes. They noted that the increased integration of social, economic and governance factors into compensation, which have been added to align with firm values, also present challenges in terms of measurement.
As for governance, firms noted that, while there has been greater harmonisation of compensation regimes in recent years, important differences (e.g. deferral requirements, bonus cap, disclosure regimes) still exist, and these continue to present practical difficulties in terms of designing and implementing consistent compensation policies across international groups.