FSB says more work to do on remuneration

Financial institutions around the world have made good progress incorporating risk measures into executive remuneration practices but more needs to be done to align remuneration and risk management.

These were among the findings of a workshop on remuneration practices organised by the Financial Stability Board. The workshop was held in April but a report of proceedings was released late last week.

The workshop findings will be included in a report on remuneration practices to be published ahead of the G20 Summit in Turkey in November.

The FSB said boards had accepted greater responsibility in ensuring that remuneration achieved multiple goals, particularly prudent risk-taking.

"Risk alignment is now routinely considered in the design and governance of compensation systems, with better indicators of risk alignment now in use. Risk reviews have become common," the FSB said.

However, it said more work needed to be done to ensure the effective alignment of remuneration and risk in terms of influencing staff behaviour throughout organisations.

The FSB said boards had also increased their focus on conduct issues, adjusting remuneration to encourage positive behaviour.

"However, credible deterrence remains a challenge," it said.

"Compensation systems appear not to be sufficiently developed to effectively address conduct issues on an ex ante basis."

Time horizons have also changed, with more focus on rewarding people over a longer time period, given the expected timing of the realisation of risk.