APRA publishes Chair Wayne Byres’ speech updating remuneration consultation
The Australian Prudential Regulation Authority (APRA) has published a speech on remuneration delivered this afternoon by Chair Wayne Byres to the Women in Banking and Finance Series Luncheon in Sydney.
In Remuneration: reactions and responses, Mr Byres shed light on the industry feedback APRA has received in response to its proposal to strengthen and clarify remuneration requirements in APRA-regulated entities.
Mr Byres’ comments included:
- “Well-designed remuneration arrangements should produce a win-win: companies generate higher productivity, more sales or better quality output, and staff are financially rewarded for their efforts. But unfortunately that’s not always the way it plays out. There is ample evidence of improperly designed incentives encouraging actions and attitudes that are contrary to the long-run interests of the company itself, let alone other stakeholders. in those cases, it has been a lose-win: firms were being damaged, but rewarding staff for causing the damage along the way.”
- “There does appear to be an underlying desire to improve remuneration practices in the financial system: few sought to argue that the status quo was optimal. Sadly though, there is no consensus on what improvement looks like. Finding the right balance will therefore not be easy.”
- “We are not locked in to the specific 50 per cent proposal [on the use of financial metrics] and certainly recognise there are trade-offs involved, so will be looking at other options. These could include, for example, a higher limit, a narrower definition of ‘financial metrics’, or an alternative way to use non-financial metrics. Whatever, we do, however, the challenge to find an alternative that gives sufficient comfort that a ‘profit alone’ approach will not re-emerge in another guise.”
- “Our goal of having more engaged Boards exercising more discretion based on a holistic assessment of performance will require Boards to do more than they have traditionally done. But equally there is little value in asking Boards to do something they cannot properly do. We will be looking further at where to appropriately draw the line, and how to define a clearer and tighter set of Board responsibilities that allows Boards to exercise the discretion that we are expecting them to exercise, while at the same time not overloading them with responsibilities they cannot, as non-executives, fulfil.
The full speech is available at: https://www.apra.gov.au/news-and-publications/apra-chair-wayne-byres-speech-to-women-banking-and-finance-series-luncheon