Principles and Implementation Standards for Sound Compensation Practices
The Principles for Sound Compensation Practices are intended to apply to significant financial institutions, but they are especially critical for large, systemically important firms. 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.
The Implementation Standards report responds to the call by the G20 Finance Ministers and Governors to submit detailed specific proposals on corporate governance reforms, global standards on pay structure and greater disclosure and transparency, to strengthen adherence to the FSB Principles for Sound Compensation Practices. The standards set out in this report focus on areas in which especially rapid progress is needed. They do not fully cover all aspects of the FSB Principles but prioritise areas that should be addressed by firms and supervisors to achieve effective global implementation of the Principles.
The Principles were issued in April 2009, implementation standards in September 2009; and assessment methodology was issued by the BCBS in Jan 2010.
International Endorsement : The Principles and Standards for Sound Compensation Practices have been endorsed by G20 Leaders in the London (April 2009) and Pittsburgh (September 2009) Summits respectively.
In the case of banking supervision, the Basel Committee on Banking Supervision's Compensation Principles and Standards Assessment Methodology (issued in January 2010) aims to guide supervisors in reviewing individual firms' compensation practices and assessing their compliance with the FSB Principles for Sound Compensation Practices and their implementation standards. It seeks to foster supervisory approaches that are effective in promoting sound compensation practices at banks and help support a level playing field.