The Financial Stability Board has created a group devoted to monitoring implementation of reforms to financial industry compensation practices, and a mechanism to deal with firms’ complaints about fairness.
The FSB announced Monday that it has recently established the Compensation Monitoring Contact Group, which is a network of national experts with regulatory responsibility for industry compensation practices, to monitor and reporting on national implementation of principles and standards on sound compensation practices.
The principles were developed in the wake of the financial crisis, and aim to align financial firms’ employee risk taking incentives with the long-term profitability of their firms. They call for effective governance, and for compensation to be adjusted for all types of risk, to be symmetric with risk outcomes, and to be sensitive to the time horizon of risks.
A peer review on compensation in 2011 found that good progress has been made in implementing the FSB principles, but that more work is necessary to overcome constraints to full implementation and to address concerns by firms of an uneven playing field.
In addition to the new monitoring group, the FSB has also established a mechanism for national supervisors to bilaterally address specific compensation-related complaints by financial institutions that may represent level playing field concerns. The process is designed to deal with complaints raised by firms to their home regulators that document a competitive disadvantage as a result of the inconsistent implementation of the principles by firms based in other jurisdictions.