APRA Seeks Improvement in Executive Remuneration

On 4 April 2018, APRA released the results of a review of remuneration practices at large financial institutions which found considerable room for improvement in the design and implementation of executive remuneration structures.

APRA’s review comprised detailed analysis of executive remuneration practices and outcomes from a sample of 12 regulated institutions including ADI, insurance, and superannuation sectors.

The review found that remuneration frameworks and practices did not consistently and effectively promote sound risk management and long-term financial soundness, and fell short of the better practices set out in APRA’s existing guidance.

The report identified the need for improvement in:

  • ensuring practices were adopted that were appropriate to the institution’s size, complexity and risk profile;
  • the extent to which risk outcomes were assessed, and weighted, within performance scorecards;
  • enforcement of accountability mechanisms in response to poor risk outcomes; and
  • evidence of the rationale for remuneration decisions.

In response to the findings, APRA will consider ways to strengthen its prudential framework.

Chairman Wayne Byres of APRA  stated,  “Boards and senior executives should consider the findings of this review and take action to better align their remuneration arrangements with good risk management and the long-term soundness of their institutions.”

Any revisions to the prudential framework will be subject to APRA’s usual practices of stakeholder consultation and engagement.

A copy of the Information Paper may be found here:

Information Paper

 

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