Prudential Standard CPS 511: Remuneration

The AICD acknowledges the need to review and strengthen the regulatory settings that apply to pay in the financial services sector and is supportive of the development of a stand-alone prudential standard on remuneration, recognising the significant impact that remuneration structures can have on firm culture, conduct and performance, and the need to strengthen current remuneration practices.

We also support a number of key aspects of the standard, including requiring board approval of the remuneration policy and active oversight of an entity’s overall remuneration framework, adjustments to remuneration outcomes to reflect performance and risk outcomes, and regular compliance and effectiveness reviews.

However, we are concerned that the more prescriptive elements in the standard may ultimately work against APRA’s objectives. In some instances, they go well beyond financial services pay regulation in other highly regulated jurisdictions.

We include specific recommendations on alternative approaches to achieve APRA’s objectives in the body of our submission.

Overall, we consider it to be critical that boards retain responsibility and accountability for structuring executive remuneration and setting remuneration frameworks that are tailored to their organisation’s strategy and risk profile.