This consultation seeks views on recommendations for consistent national reporting of data on the use of compensation tools to address misconduct risk. Collecting and evaluating compensation data on a regular basis can provide both firms and supervisors with important insights into the effectiveness of compensation programmes and potential areas of weakness. Currently the gathering and analysis of compensation data varies significantly across jurisdictions and firms.
The Recommendations, which are part of the FSB’s 2015 workplan on measures to reduce misconduct risk, seek to assist national supervisory authorities from all financial sectors by enhancing their capacity to consider and monitor the effectiveness of compensation tools and other mechanisms in promoting good conduct and addressing misconduct risk in significant financial institutions, within the scope of a jurisdiction’s laws and regulations.
The proposed data set included the in Recommendations is designed to help firms and supervisors answer a number of important questions including whether governance and risk management processes surrounding compensation:
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appropriately include conduct considerations in the design of their compensation and incentive systems, including the setting of individual goals, ex ante performance measurement mechanisms and ex post compensation adjustments;
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support the effective use of compensation tools – in combination with other performance management tools such as training, promotion and disciplinary systems – to help promote good conduct or to remediate individual conduct that is not in line with the firm’s expectations, including holding individuals accountable for any misconduct that occurs;
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promote wider risk management goals, including for conduct issues, consistent with the firm’s strategy and risk tolerance; and
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support the effective identification of emerging misconduct risks and where appropriate, review use of incentive systems and compensation decisions in response to conduct incidents to ensure alignment of incentives, risk and reward.
The FSB welcomes comments and responses to the questions set out in the consultative document by Friday 6 July 2018. Responses should be sent to [email protected] with “Compensation data consultation” in the subject line. Responses will be published on the FSB website unless respondents expressly request otherwise.