Earn
Finance worker incentive reforms will impact customers
Existing salary arrangements for financial institution employees could be scrapped under reforms aimed at better incentivising the “right” behaviour of APRA-regulated entities, according to the authority.
Finance worker incentive reforms will impact customers
Existing salary arrangements for financial institution employees could be scrapped under reforms aimed at better incentivising the “right” behaviour of APRA-regulated entities, according to the authority.
In a new discussion paper released today, the prudential regulator has publicised a draft standard aimed at “clarifying and strengthening remuneration requirements” to better align remuneration frameworks with the long-term interests of entities and their stakeholders.
According to APRA, the reform would introduce heightened requirements on entities’ remuneration and accountability arrangements in response to evidence that existing arrangements have been a factor in driving poor consumer outcomes.
Addressing recommendations 5.1 to 5.3 from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry’s final report, the changes would see Australia stepping into line with “better” international remuneration practice, it said.
According to APRA, a key reform being proposed in the paper is an elevation of the importance of managing non-financial risks, with financial performance measures not to comprise more than 50 per cent of performance criteria for variable remuneration outcomes.
Minimum deferral periods for variable remuneration of up to seven years would also be introduced for senior executives in larger and more complex entities, with boards given scope to recover remuneration for up to four years after it has vested.
Additionally, boards would be required to approve and actively oversee remuneration policies for all employees and need to regularly confirm they are being applied in practice to ensure individual and collective accountability, APRA had explained.
For the prudential regulator’s deputy chair, John Lonsdale, it’s clear that existing remuneration arrangements in many entities have not incentivised the “right” behaviours.
“Remuneration and accountability frameworks play an important role in driving employee behaviour,” he considered.
“Where policies are poorly designed, or not followed in practice, companies may incentivise conduct that is contrary to the long-term interests of the company and its customers.”
In the financial sector, APRA has observed an over-emphasis on short-term financial performance and a lack of accountability when failures occur, especially among senior management, according to the deputy chair.
He noted that this “has contributed to a series of damaging incidents that have undermined trust in both individual institutions and the financial industry more broadly”.
“Crucially from APRA’s perspective, these incidents have damaged not only institutions’ reputations, but also their financial positions,” Mr Lonsdale continued.
“Limiting the influence of financial performance metrics in determining variable remuneration will encourage executives to put greater focus on non-financial risks, such as culture and governance. As our recent response to the industry self-assessments made clear, this remains a weak spot in many financial institutions,” he offered.
Clarifying that APRA “will not be determining how much employees get paid”, Mr Lonsdale said the authority wants to empower boards to more effectively incentivise behaviour that supports the long-term interests of their entities in order to hopefully see better outcomes for customers and higher returns for shareholders in the long term.
According to a statement from APRA, the three-month consultation period will close on 22 October.
The release of the final prudential standard is expected before the end of 2019.
RELATED ARTICLES
About the author
About the author
Salary
The financial benefits of a diversified income stream
In today’s volatile economic environment, relying solely on a single source of income can be risky. Diversifying your income streams can provide financial stability, reduce the risk of financial ...Read more
Salary
Despite losing top spot, Elon Musk rakes in $400,000 hourly
Elon Musk, the entrepreneur known for his involvement in a wide range of innovative and technological businesses, has recently been dethroned as the wealthiest individual in the world, with Bernard ...Read more
Salary
Rising unemployment and skill shortages prompt Australian businesses to look globally for talent
Australia has witnessed its unemployment rate surging above 4% for the first time in two years, revealed by the latest Labour Force data. Read more
Salary
New findings link job mobility hurdles to stagnant wage growth
Recent research from the e61 Institute has unearthed significant links between slow wage growth in Australia and obstacles to job mobility, including non-compete clauses, complicated occupational ...Read more
Salary
Employers scrambling to prevent workplace brain drain
As workplace managers face a swiftly evolving employment market that’s increasingly favouring the demands of white-collar employees and jobseekers, bosses are falling under mounting pressure to ...Read more
Salary
Unions back Albanese’s pledge to close gender pay gap
An electoral promise from Labor to make gender pay equity an objective of the Fair Work Act has been hailed as a “watershed moment” from industry peak bodies who have traditionally advocated for ...Read more
Salary
Coles asked to disprove $115m in alleged wage theft
One of Australia’s biggest supermarkets faces allegations that it underpaid more than 7,500 employees a total of $115 million. Read more
Salary
Gen Z left behind in progress to gender equality
Women under 25 may emerge from the pandemic in a worse financial position than when it began, new research has shown. Read more
Salary
The financial benefits of a diversified income stream
In today’s volatile economic environment, relying solely on a single source of income can be risky. Diversifying your income streams can provide financial stability, reduce the risk of financial ...Read more
Salary
Despite losing top spot, Elon Musk rakes in $400,000 hourly
Elon Musk, the entrepreneur known for his involvement in a wide range of innovative and technological businesses, has recently been dethroned as the wealthiest individual in the world, with Bernard ...Read more
Salary
Rising unemployment and skill shortages prompt Australian businesses to look globally for talent
Australia has witnessed its unemployment rate surging above 4% for the first time in two years, revealed by the latest Labour Force data. Read more
Salary
New findings link job mobility hurdles to stagnant wage growth
Recent research from the e61 Institute has unearthed significant links between slow wage growth in Australia and obstacles to job mobility, including non-compete clauses, complicated occupational ...Read more
Salary
Employers scrambling to prevent workplace brain drain
As workplace managers face a swiftly evolving employment market that’s increasingly favouring the demands of white-collar employees and jobseekers, bosses are falling under mounting pressure to ...Read more
Salary
Unions back Albanese’s pledge to close gender pay gap
An electoral promise from Labor to make gender pay equity an objective of the Fair Work Act has been hailed as a “watershed moment” from industry peak bodies who have traditionally advocated for ...Read more
Salary
Coles asked to disprove $115m in alleged wage theft
One of Australia’s biggest supermarkets faces allegations that it underpaid more than 7,500 employees a total of $115 million. Read more
Salary
Gen Z left behind in progress to gender equality
Women under 25 may emerge from the pandemic in a worse financial position than when it began, new research has shown. Read more
