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.
This email address is being protected from spambots. You need JavaScript enabled to view it.
About the author
About the author
Salary
Economists predict a further drop in unemployment
Economists are predicting further falls in the unemployment rate largely led by Victoria as it emerged from an extended lockdown, new research has revealed. ...Read more
Salary
Casual workers could lose $1k under new reforms
The opposition has claimed that the Morrison government’s plan to amend penalty rates could cost casual employees up to $1,100. ...Read more
Salary
Job vacancies surpass pre-COVID levels
The Australian economy is continuing to show signs of improvement, with job vacancies skyrocketing over the last quarter, official figures have revealed. ...Read more
Salary
Unions take Qantas to High Court over JobKeeper ‘misuse’
Aussie unions are taking their fight with Australia’s largest airline to the High Court following claims Qantas misused the JobKeeper payment to subsidise overtime payments, essentially robbing wor...Read more
Salary
JobSeekers urged to ‘turn off Netflix’ and work in regional Australia
The acting Prime Minister has urged unemployed Australians who are currently on JobSeeker benefits to "turn off Netflix" and look for regional work, as farmers struggle to find temporary foreign worke...Read more
Salary
Aussies rely on debt to get through pandemic
Australians are relying on personal credit to get through the COVID-19 pandemic according to survey results released by a financial institution. ...Read more
Salary
Stressed-out Aussies unlikely to receive pay rise
While Aussie workers are spending more time at work, and their stress levels are through the roof, they’re not receiving higher levels of pay, new research has found. ...Read more
Salary
Work in the gig economy could be costing you over $90k
Despite the growing popularity of the gig economy, workers in this space could face long-term financial disadvantages, a new research paper has found. ...Read more
Salary
Economists predict a further drop in unemployment
Economists are predicting further falls in the unemployment rate largely led by Victoria as it emerged from an extended lockdown, new research has revealed. ...Read more
Salary
Casual workers could lose $1k under new reforms
The opposition has claimed that the Morrison government’s plan to amend penalty rates could cost casual employees up to $1,100. ...Read more
Salary
Job vacancies surpass pre-COVID levels
The Australian economy is continuing to show signs of improvement, with job vacancies skyrocketing over the last quarter, official figures have revealed. ...Read more
Salary
Unions take Qantas to High Court over JobKeeper ‘misuse’
Aussie unions are taking their fight with Australia’s largest airline to the High Court following claims Qantas misused the JobKeeper payment to subsidise overtime payments, essentially robbing wor...Read more
Salary
JobSeekers urged to ‘turn off Netflix’ and work in regional Australia
The acting Prime Minister has urged unemployed Australians who are currently on JobSeeker benefits to "turn off Netflix" and look for regional work, as farmers struggle to find temporary foreign worke...Read more
Salary
Aussies rely on debt to get through pandemic
Australians are relying on personal credit to get through the COVID-19 pandemic according to survey results released by a financial institution. ...Read more
Salary
Stressed-out Aussies unlikely to receive pay rise
While Aussie workers are spending more time at work, and their stress levels are through the roof, they’re not receiving higher levels of pay, new research has found. ...Read more
Salary
Work in the gig economy could be costing you over $90k
Despite the growing popularity of the gig economy, workers in this space could face long-term financial disadvantages, a new research paper has found. ...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
