The Australian Prudential Regulation Authority (APRA) is considering revising some of its proposed terms on the executive pay policies of Australia’s largest insurers and banks following fallout from a government-backed inquiry.
In 2019, APRA proposed a minimum deferral period for senior leaders' variable long-term bonuses. The decision came after the Royal Commission blamed flawed incentives for widespread wrongdoing in the sector.
The regulator now plans to reduce the minimum deferral period from seven to six years for CEOs, from six to five years for senior managers, and from six to four years for highly paid material risk-takers. It is also considering replacing a cap intended to limit the significance of financial performance in defining variable pay and streamline remuneration requirements for smaller firms.
“APRA's revised standard on remuneration is deliberately principles-based to provide boards with flexibility to tailor remuneration frameworks to their entities. However, with this flexibility comes an obligation that boards actively oversee remuneration policies for employees and ensure that there are appropriate consequences when people fail to meet expectations,” said APRA Deputy Chair John Lonsdale.
“Once implemented, we expect the standard to deliver stronger incentives for individuals to manage non-financial risk, appropriate financial consequences where material risk incidents occur and increased transparency to drive stronger board accountability for remuneration outcomes.”
The consultation period for APRA's updated proposals will close on February 12, 2021. The regulator expects to finalise the new policies by mid-2021.