FSB has published its fourth annual progress report on implementing its Principles for Sound Compensation Practices and their implementation standards. The report finds that:

  • almost all FSB jurisdictions have now fully implemented the principles and standards for banks;
  • the risk alignment of compensation structures, at least for senior executives, shows improvements in several respects;
  • more analysis is needed to assess the extent to which existing compensation provisions enable financial institutions to prevent or deter misconduct by employees; and
  • in the insurance sector, fewer jurisdictions have adopted dedicated regulation or supervisory guidance.

FSB’s Compensation Monitoring Contact Group (CMCG) is responsible for monitoring and reporting on national implementation of the principles and standards, has agreed to undertake the following further action:

  • continue to follow up on several recommendations of the third progress report for action by national authorities which remain relevant;
  • coordinate supervisory authorities via the CMCG to explore the use of indicators to monitor the effective risk alignment of compensation structures;
  • continue to take stock of compensation practices in other financial sectors through collaboration with the relevant standard setting bodies;
  • collect information and examine the case for strengthening disincentives to misconduct through compensation-related tools and if appropriate will make recommendations on better practices; and
  • re-examine the issue of material risk-takers in 2016-2017.

(Source: FSB Reports on Compensation Practices)