How do we rebuild shareholder trust on executive pay

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Appendix 2: The APRA remuneration and governance standard On 30 November 2009 APRA released the final versions of the amended Prudential Standards APS 510, GPS 510 and LPS 510, which cover increased remuneration and governance requirements for APRA-regulated institutions. The revised governance standards will come into effect on 1 April 2010.
Appendix 2: The APRA remuneration and governance standard APRA has stated that its supervisory focus in respect of its remuneration requirements will be on genuine board involvement and engagement, demonstrating independence from management, gauging the adequacy and appropriateness of the remuneration policy (especially in its linkage to risk) and actively monitoring the implementation of the policy. In the first six to t<strong>we</strong>lve months, APRA will be seeking information on the implementation of its remuneration requirements (particularly from larger institutions) and will assess peer institutions together. Where APRA judges that the remuneration arrangements of a regulated institution are likely to encourage excessive risk-taking, it has several supervisory options, including the po<strong>we</strong>r to impose additional capital requirements on the institution. By 1 April 2010 the board remuneration committee, with appropriate composition and charter, will need to be established and a written remuneration policy that is largely compliant with the governance standards will need to be in place. Regulated institutions must ensure that contracts in force as at 1 April 2010 are fully compliant at the first reasonable opportunity for renegotiation, and in any event by 31 March 2013. In addition, it is APRA’s expectation that regulated institutions negotiating or renegotiating contracts bet<strong>we</strong>en the release of the revised governance standards (1 December 2009) and their commencement date will be fully cognisant of APRA’s requirements and will begin the transition during this period for existing arrangements that would not meet the revised standards. Prudential Standard summary • The board must establish and maintain a written remuneration policy. This policy must: – outline the remuneration objectives and the structure of the remuneration arrangements, including performance-based pay – encourage behaviour that supports long-term financial soundness and the risk management framework – reflect: a) the outcomes of business activities b) the risks related to the business activities taking account, where relevant, of the cost of the associated capital c) the time necessary for the outcomes of those business activities to be reliably measured – provide the board with discretion to adjust performance-based components of remuneration <strong>do</strong>wnwards, to zero if appropriate, if such adjustments are necessary to (a) protect the financial soundness of the regulated institution; or (b) respond to significant unexpected or unintended consequences that <strong>we</strong>re not foreseen by the board remuneration committee What this means / PwC view • Ensure that your company’s remuneration policies not only reward long-term sustainable value creation, but that they also appropriately incorporate risk. • Understand how long it takes to reliably measure performance and assess the applicable risks at a business activity level. There may be challenges in both obtaining a granular understanding of the risks which exist in relevant businesses and also what metrics to use to assess such risks. • Determine whether one deferral period is still appropriate across the various business activities or if there needs to be different deferral periods for different activities. Maintain the focus on simplicity where possible. • Consider how to incorporate such discretion into the incentive plans. PricewaterhouseCoopers Executive Remuneration – Fourth Edition 2010 | 53
Page 1 and 2:
Executive Remuneration Fourth editi
Page 3 and 4: xxxxxxxxxxxxxxxxxxxxxx Contents Bre
Page 5 and 6: Breaking the mould The increasingly
Page 7 and 8: Breaking the mould “What about pe
Page 9 and 10: Breaking the mould sharehol
Page 12 and 13: Risk and reward Globally, during th
Page 14 and 15: Risk and reward So what can be <str
Page 16: Risk and reward 1. 2. . . Understan
Page 19 and 20: Aligning reward to performance is a
Page 21 and 22: Aligning reward to performance is a
Page 23 and 24: Regulation, regulation and more reg
Page 25 and 26: Regulation, regulation and more reg
Page 28 and 29: Who wants to be the chair of a remu
Page 30 and 31: Who wants to be the chair of a remu
Page 32: Who wants to be the chair of a remu
Page 35 and 36: Being independent The perception an
Page 37 and 38: Remuneration committees need to bec
Page 39 and 40: Choppy waters It is clear from the
Page 41 and 42: Choppy waters 6. Get shareh
Page 43 and 44: A look in the rear-vision mirror: A
Page 45 and 46: A look in the rear-vision mirror: A
Page 48 and 49: Appendix 1: Productivity Commission
Page 56 and 57: Appendix 2: The APRA remuneration a
Page 58 and 59: Our Team Our People and Change team
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How do we rebuild shareholder trust on executive pay

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