In October 2008, the Prime Minister announced that the Government would be examining with the Australian Prudential Regulation Authority (APRA) what domestic policy actions on executive remuneration would be appropriate to avoid excessive risk‑taking in Australia’s financial institutions. In light of industry and public interest in this topic, APRA is issuing this media release to outline its intended approach.
APRA is developing a principles‑based framework for executive remuneration structures that would apply to APRA‑regulated institutions. These institutions cover a range of corporate structures including listed and unlisted companies, mutually owned organisations, locally owned and foreign‑owned companies and branches of foreign companies.
The proposed framework would be an extension of the governance, risk management and capital requirements to which regulated institutions are already subject, and would be monitored through the supervisory review processes that APRA staff undertake regularly with individual institutions.
According to APRA Executive Member John Trowbridge: 'APRA does not intend to focus on the levels of compensation paid to executives. APRA will concentrate instead on the structure of executive remuneration and, in particular, on the incentives built into these arrangements. It will be a principles‑based approach aimed at encouraging management behaviour that protects and supports the interests of the beneficiaries (depositors, policyholders and superannuation fund members) of APRA‑regulated institutions.'
'There is a clear consensus that an important factor contributing to the global financial turmoil was remuneration practices that encouraged inappropriate risk‑taking. So far, Australian financial institutions have weathered this global financial storm well. It is nevertheless essential that remuneration practices in the Australian financial sector are conducive to long‑term financial strength and stability.'
APRA is developing a discussion paper on principles for executive remuneration for APRA‑regulated institutions and anticipates issuing the paper in the second quarter of 2009. This paper will take into account global initiatives in this area as part of the G20 Action Plan announced in November 2008, in which APRA is participating. The paper will invite submissions from interested parties.
After considering submissions received, APRA will issue a response paper along with draft principles and guidance to be applied by the boards of APRA‑regulated institutions. This second set of published material, more detailed than the first, will give another opportunity for submissions before APRA finalises its approach, expected to be during the second half of 2009.
The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the financial services industry. It oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance companies, friendly societies, and most members of the superannuation industry. APRA is funded largely by the industries that it supervises. It was established on 1 July 1998. APRA currently supervises institutions holding approximately $3 trillion in assets for 21 million Australian depositors, policyholders and superannuation fund members.
Media and industry inquiries only:
Stuart Snell, Head of Public Affairs
Australian Prudential Regulation Authority
Telephone: 02 9210 3384
Mobile: 0407 250 276
All other inquiries:
APRA Contact Centre 1300 131 060.
