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The Final Remuneration Standard

Friday 27 August 2021


Two years after the consultation began this week saw of the final version of the prudential standard fo
r remuneration

At the time when the consultation began back in 2019 Australian Prudential Regulation Authority Deputy Chair the John Lonsdale said in an official statement, “Remuneration and accountability frameworks play an important role in driving employee behaviour. Where policies are poorly designed, or not followed in practice, companies may incentivise conduct that is contrary to the long-term interests of the company and its customers." 

It is expected that the Cross Industry Prudential Standard (CPS) 511 will come into effect 1 January 2023. 

Lonsdale said this week said that there will be a phased implementation starting with large, authorised deposit-taking institutions (ADIs).

The deputy chair added, “CPS 511 will impose genuine financial consequences on senior banking, insurance and superannuation executives when their decisions lead to poor risk management or conduct that is contrary to community expectations.
The prudential the regulator highlighted some requirements:

  • entities to apply material weight to non-financial metrics (such as customer complaints, breaches, and regulatory and audit findings) when determining variable remuneration for employees;
  • entities to reduce variable remuneration, potentially to zero, when warranted by poor risk conduct; 
  • new minimum deferral requirements for variable remuneration, coupled with malus and clawback provisions; and
  • increased board oversight, transparency, and accountability on remuneration outcomes.