An investigation into executive pay levels at Australia’s big banks and financial institutions by the Australian Prudential Regulation Authority (APRA) has found “considerable room for improvement”.
In its information paper Remuneration Practices at Large Financial Institutions, APRA reports on its review, which examined whether policies and practices in regulated institutions were meeting the objectives of the regulator’s prudential framework.
Chair of APRA, Wayne Byres said 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”.
Mr Byres said the review comprised detailed analysis of executive remuneration practices and outcomes from a sample of 12 regulated institutions across the authorised deposit-taking institutions, and insurance and superannuation sectors.
“The sample of institutions reviewed collectively accounts for a material proportion of the total assets of the Australian financial system,” Mr Byres said.
He said all regulated institutions were encouraged to review their remuneration frameworks and address any areas where APRA’s findings indicated room for improvement.
He said 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.
“APRA does not believe institutions should be satisfied with simply meeting the minimum requirements on remuneration,” Mr Byres said.
“Well-targeted incentive schemes and firmly enforced accountability systems should be viewed not simply as a matter of regulatory compliance but as essential for sustained commercial success.”
APRA’s 30-page information paper can be accessed at this PS News link.
