The FSB organised in Paris on 1 April 2014 the second workshop on compensation practices to share experiences and lessons on the implementation of the FSB Principles and Standards for Sound Compensation Practices (P&S) by financial institutions. The workshop focused on three main areas: the identification and treatment of material risk takers (MRTs); the use of malus and clawback clauses as part of the alignment of compensation with risk taking and performance; and governance frameworks, including the role of compensation structures in supporting a sound risk and compliance culture at financial institutions. Officials from the FSB Compensation Monitoring Contact Group and nineteen senior executives mainly responsible for remuneration, primarily from global systemically important banks, participated in the workshop.
In discussing practical implementation challenges on specific compensation issues, the 2014 workshop built on the findings of the 2013 progress report which found that while good progress has been made, more work is needed to embed positive risk management in firms' compensation practices and to achieve effective alignment with risk and performance. The 2013 report, which included findings from the first workshop organised in November 2012, recognised that assessing implementation effectiveness is a multidimensional task because the relationship between compensation, performance, governance and risk taking differs across firms and time depending on the nature of business and of business conditions.
This summary reflects the main points raised in the discussion at the workshop. These points do not necessarily represent the views of the authorities nor should they be understood to be consensus views expressed by financial institutions at the workshop. The findings from the workshop will be included in the next progress report on compensation practices, which will be prepared in advance of the G20 Summit in November 2014.
The FSB welcomes any feedback on the topics discussed at the workshop and summarised in this note. Comments should be sent to fsb@bis.org by 30 June 2014.
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