On 8 March 2019 the Financial Stability Board (FSB) published a document containing the key takeaways of its London workshop on supervisory practices that implement the FSB’s Principles for Sound Compensation Practices and their Implementation Standards.

Key takeaways from the workshop included:

  • firms reported significant changes to compensation structures post-financial crisis following the introduction of legislation, regulation and supervisory expectations on compensation. Changes are most pronounced in the European Union and United States;
  • banks reported that they continue to face legal challenges with the application of malus and, to a greater extent, clawback. Clawback is rarely used;
  • the increased focus on conduct risk continues to shape conversations around behavioural impacts and how to incentivise and reward the desired culture. Banks agreed that compensation had a role to play in improving conduct standards in firms. A number of banks mentioned the importance of tackling what would have previously been considered minor infractions in order to set a clear expectation with staff that misconduct would not be tolerated;
  • in those jurisdictions that have regulation or supervisory guidance on the identification of material risk takers, the number identified increased significantly in the early post-crisis years but has now plateaued; and
  • a limited number of banks reported increased use of technology as part of efforts to ensure the effectiveness of compensation regimes. This included algorithms for identifying outliers, plus back testing and regression analysis.