The BEAR applies to executives of Approved Deposit Taking Institutions (ADIs) and imposes a mandatory deferral of a portion of remuneration, essentially to allow for malus adjustments where issues subsequently come to light as seen in the Hayne Royal Commission. Last month APRA released a draft consultation carving out of the deferral requirement incentives which are paid to executives that are accountable for other things as well as a running a bank or part of (see HERE) .
While the amendment is welcome and recognises the messy reality of corporate life where a BEAR executive may have a non-ADI business in their portfolio, it does not go far enough to consider adjusting fixed remuneration on the same basis. That is, if you can carve out incentives why not carve out fixed remuneration if it doesn’t relate to the ADI entity.
Why is this an issue? Each year the BEAR deferral trigger considers two criteria – the amount of the incentive versus the total remuneration (fixed remuneration + incentive). The BEAR legislation applies fixed percentages to each criteria, the smaller answer being the amount to be deferred.
If the incentive amount can be adjusted but fixed remuneration cannot, then the calculation will be skewed and the deferred amounts being a random outcome.
Guerdon Associates have made a submission to APRA that the proposal having quarantined non-ADI incentives from the deferral criteria should extend to the relative proportion of fixed remuneration associated with oversight of a non-ADI entity.
Guerdon Associates submission to APRA can be viewed HERE .© Guerdon Associates 2020 Back to all articles