As noted in prior newsletters, the Australian Prudential Regulation Authority (APRA) mentioned the role executive compensation played in the financial crisis overseas a good 8 months before its impact was felt in Australia (see HERE).

It is now casting its spotlight on executive remuneration packages paid by financial institutions in an effort to curb excessive risk taking. APRA is developing a principles-based framework for executive remuneration structures in line with Prime Minister Kevin Rudd’s announcement in September of policy actions on executive remuneration designed to avoid risk taking (see HERE).

The proposed framework will apply to all APRA-regulated institutions, including banks and relevant unlisted companies, mutually owned organisations and foreign-owned companies and will extend the regulator’s oversight of those institutions, APRA said in a statement (see HERE).

“APRA does not intend to focus on the levels of compensation paid to executives,” APRA executive member John Trowbridge said. “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.”

APRA’s discussion paper on the issue will take into account global initiatives on executive remuneration as part of the G20 Action Plan announced last month, in which the local regulator is participating. APRA will invite submissions after its discussion paper on the matter is issued in the second quarter of 2009.

However, Guerdon Associates is hopeful Mr. Trowbridge will reveal more in advance of the paper’s release, as well as seek feedback, during his presentation at our Remuneration Forum for institutional investors and board directors on March 16.

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