FSB:progress in making executive pay aligned with risk

    Countries with major financial institutions are making gradual progress toward ensuring that compensation for top executives reflects the real risks that the firms are taking on, the Financial Stability Board said in a progress report.


    The FSB, which groups authorities in charge of financial stability in 24 countries, said those countries -- Argentina, India, Indonesia, Russia and South Africa -- that in 2011 showed significant gaps in implementing the FSB's Principles and Standards (P&S) for Sound Compensation Practices had now made progress in implementing the principles. 
    But in Indonesia and Russia, the FSB said necessary regulation was still under review and had not yet been issued. Argentina, Brazil, China, India and Turkey had decided not to implement some of the FSB's principles due to domestic limitations, such as labour laws.
    "These jurisdictions will need to continue their efforts to overcome impediments to full implementation in order to ensure an outcome that is fully consistent with the objectives of the P&S," the FSB said.
    The Group of 20 leading economic powers has made the FSP responsible for monitoring and coordinating reform of the financial sector following the global financial crises that began in 2007. The FSB's principles were endorsed by the G20 Leaders at their Summits in London in April 2009 and Pittsburgh in September 2009.
    Compensation practices at large financial institutions were a key contributing factor to the global financial crisis. The FSB's principles were developed to align compensation with prudent risk-taking, particularly at significant financial institutions where executive pay typically was tied to short-term profits but not the longer-term risks.
    For further details, please see the FSB's full report.


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