The Financial Stability Board (FSB) has published its fourth annual progress report on implementing the FSB Principles for Sound Compensation Practices and their implementation standards (P&S).
The main findings in the report include:
- almost all FSB jurisdictions have now fully implemented the P&S for banks;
- the oversight of compensation practices has now been fully embedded in bank supervisory frameworks in most jurisdictions. More than half of the jurisdictions assess the level of implementation by significant banks as “high” in the areas of governance, risk alignment and stakeholder engagement. The supervisory focus is now on further improving the governance framework and the risk alignment of compensation, including by ensuring a better link between compensation frameworks and risk governance frameworks;
- risk alignment of compensation structures, at least for senior executives, shows some improvement. Key trends include that in those jurisdictions where malus and clawback conditions are mandated or applied, the deferred portion of variable remuneration is considered to be fully at risk of forfeiture;
- an increase in the fixed portion of remuneration in 2014 compared to 2011 is observed by several jurisdictions, both EU and non-EU members;
- compensation and risk governance frameworks are increasingly linked. However, there remains room for improvement in developing quantitative and qualitative measures to assess changes in risk-taking behaviour; and
- there are important differences in the implementation of the P&S in the insurance sector across jurisdictions.
The FSB’s Compensation Monitoring Contact Group, which is responsible for monitoring and reporting to the FSB on national implementation of the P&S, has agreed to take further action in certain areas including:
- taking stock of compensation practices in other financial sectors;
- continuing to collect information and examine the case for strengthening disincentives to misconduct through compensation-related tools and if appropriate make recommendations on better practices; and
- re-examining the issue of material risk-takers in 2016-2017.
View FSB publishes fourth progress report on compensation practices, 10 November 2015