FSB Publishes Takeaways from Workshop on Sound Compensation Practices
The Financial Stability Board (FSB) published a summary of the key takeaways from its virtual, industry workshop, which was a part of the regular assessment of effectiveness of the implementation of the principles for sound compensation practices and the associated implementation standards. The workshop was an opportunity to exchange information on key compensation issues and challenges for the effective alignment of risk and compensation, with an additional focus on the impact of the pandemic on firms’ compensation practices.
At the workshop, the participants:
- identified trends in the use of non-financial criteria, potential differences across sectors, and how these criteria affect and are affected by firm culture. Firms expect the use of non-financial criteria such as reputation, diversity and inclusion, and environmental, social and governance (ESG) factors to be even more widespread over the next five years and continue to reinforce the firm culture.
- identified effective practices for alignment between risk and compensation and how practices may vary across sectors. Firms highlighted the critical role of internal control functions in governance and remuneration. They also noted that, at the level of board committees, a mechanism to ensure close collaboration between risk and remuneration committees exists. Firms acknowledged that remuneration is one of the most influential drivers of risk alignment; however, the overall corporate culture plays an important role in addressing various kinds of misconduct.
- focused on the most significant legal and regulatory impediments to the use of compensation tools, such as malus and claw-back and possible steps to address these. The session also explored firms’ use of severance pay.
- discussed compensation-related actions firms and supervisors have taken in relation to the pandemic, noting that most remuneration frameworks were sufficiently flexible to respond to the prolonged pandemic. The firms did not require a overhaul to their frameworks and some regulators saw better alignment of values as well as incorporation of ESG metrics in the firms they supervise. One authority observed changes, such as better alignment of firms’ compensation plans to their values and the creation of programs to encourage employees to work in the best interest of customers; this was driven by both external pressure and the adoption of ESG metrics in its strategy and objectives. One firm also mentioned that it implemented more transparent disclosures during the pandemic.
Related Links
Keywords: International, Banking, Insurance, Securities, Remuneration, Compensation Practices, Governance, ESG, COVID-19, Operational Risk, FSB
Related Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
