Principles for Sound Compensation Practices
Compensation practices at large financial institutions are one factor among many that contributed to the financial crisis that began in 2007. High short-term profits led to generous bonus payments to employees without adequate regard to the longer-term risks they imposed on their firms. These perverse incentives amplified the excessive risk-taking that severely threatened the global financial system and left firms with fewer resources to absorb losses as risks materialised. The Principles intend to apply to significant financial institutions but are especially critical for large, systemically important firms. They will be implemented by firms and will be reinforced through supervisory examination and intervention at the national level. Authorities, working through the FSF, will ensure coordination and consistency of approaches across jurisdictions. The Principles are intended to reduce incentives towards excessive risk taking that may arise from the structure of compensation schemes. They are not intended to prescribe particular designs or levels of individual compensation.