F i n a n c i a l S t a b i l i t y F o r u m P r i n c i p l e s f o r S o u n d C o m p e n s a t i o n ( R e m u n e r a t i o n ) P r a c t i c e s The Financial Stability Forum has released its Principles for Sound Compensation (Remuneration) following the GFC. They will no doubt have an influence on remuneration strategy and design moving forward.
established following a 1999 meeting of G7
Finance Ministers and Central Bank Governors
and was expanded at the G20 Heads of State
actively oversee the remuneration system’s design and operation
and Government meeting in London 2009. It
international level the work of national financial
authorities and international standards setting
supervisory and other financial sector policies.
The Principles for Sound Compensation were
prepared by a sub-committee of the Forum,
Effective alignment of remuneration with
Remuneration practices at large financial
institutions are one factor among many that
contributed to the financial crisis that began in
Compensation Practices are intended to apply
S E R V I C E S A V A I L A B L E
to significant financial institutions, but they are
especially critical for large players in the
incentives towards excessive risk taking that
may arise from the structure of remuneration
schemes. They are not intended to prescribe
particular designs or levels of individual
remuneration. One size does not fit all –
financial firms differ in goals, activities and
The FSF Principles for Sound Compensation
Practices aim to ensure effective governance
of remuneration, alignment of remuneration
engagement in remuneration. The benefits of
sound remuneration practices will be achieved
Firms must disclose clear, comprehensive and timely
only if there is determined and coordinated
This work is copyright. Apart from any
action by national regulators, facilitated if
use permitted under the Copyright Act
necessary by suitable legislative powers and
1968, no part may be reproduced by any process without prior written permission Level 16, 6 O’Connell Street Sydney Tel (02) 9225 3225 Fax (02) 9225 3235 w w w . e g a n a s s o c i a t e s . c o m . a u FSF Commentary on the principles
Remuneration is an incentive system, not simply a market wage
There is too little attention to links between remuneration and risk
A company’s board of directors should be responsible for remuneration system design and operations
Boards must pay serious and sustained attention to the design and to the operation of remuneration practices for the whole firm, not just the most senior executives
The remuneration system should be monitored and reviewed to ensure that it operates as intended.
This work is copyright. Apart from any use permitted under the Copyright Act 1968, no part may be reproduced by any process without prior written permission Level 16, 6 O’Connell Street Sydney Tel (02) 9225 3225 Fax (02) 9225 3235 Level 16, 6 O’Co onnell Street et Sydney 2) 9225 3225 Fax (02 (0 ) 9225 3235 w w w . e g a n a s s o c i a t e s . c o m . a u
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F i n a n c i a l S t a b i l i t y F o r u m 
FSF Commentary on the principles