FSB issues report on compensation practices for banks

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The Financial Stability Board (FSB) published a progress report on the principles and standards for sound compensation practices in financial institutions.

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The report examined how compensation practices have evolved since the principles and standards were first published in 2009.

The report confirmed that all FSB jurisdictions had implemented the principles and standards for sound compensation. Most banks have put in place practices and procedures to reduce the potential for inappropriate risk-taking, but further work is required to validate that practices and procedures operate effectively.

The report also found that boards appear more active and engaged with oversight of compensation processes. Further, compensation arrangements now have longer time horizons and include mechanisms that better align them with effective risk management practices.

The report said the challenge going forward is developing frameworks for assessing the effectiveness of compensation policies and practices in balancing risk and reward. Supervisors will need to ensure that compensation remains aligned with prudent risk-taking, and reflects risks and vulnerabilities as they emerge.

This is the FSB’s sixth progress report on the implementation of the principles and standards.

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