The Financial Stability Board (FSB) set the remuneration standards that prudential regulators are expected to implement. APRA carries most of the load for Australia.

Recently the FSB assessed financial institutions’ implementation of its compensation guidelines released following the global financial crisis.

It reports on this every few years, with the last released in 2021. The catalyst this time appears to be the failure of Credit Suisse and Silicon Valley bank.

Of the 29 participating jurisdictions, the FSB found that 14 jurisdictions have made legal and regulatory changes to compensation requirements since it last rapped regulators over the knuckles in 2021. Australia, the UK and Hong Kong made the most regulatory change. Some, including the US, Canada and Japan did not much at all.

Major changes applied since 2021 are listed below, in order of increasing implementation difficulty.

1. In-Year Adjustments

Five jurisdictions have made changes related to in-year adjustments, expecting companies to impose immediate consequences for serious risk or conduct issues. Most jurisdictions consider this consequence to be relatively simple to implement, although determining a fair and consistent amount can be difficult, as it involves the application of board discretion.

Only Australia has clearly defined the trigger events for downward adjustments.

2. Adjustments to Severance Payments

While adjusting severance payments is considered generally straightforward, challenges arise in balancing regulatory requirements, contract terms, and fairness, particularly in cases of large layoffs or executive dismissals. In some countries, legal frameworks limit discretion in severance agreements and mandate full payment upon termination.

Of the three most regulation-happy jurisdictions, the UK requires non-SNI (small and non-interconnected) companies to ensure that all variable remuneration, including severance pay, is subject to deferral, malus, clawback, and retention policies. Hong Kong mandates that severance payments be aligned with a suitable time horizon. Australia prohibits accelerated vesting for exiting executives, material risk takers (MRTs), and accountable persons, ensuring that deferred compensation remains subject to malus and clawback.

3. Malus

Malus is considered easier to apply than clawback. But determining triggers and justifiable adjustments can be challenging when performance is influenced by factors beyond management’s control. In some jurisdictions, restrictive labour laws and administrative burdens can limit the enforceability of malus. In other cases, cultural factors and board willingness may also impact its application.

Since the adoption of the original Principles and Standards, five jurisdictions, including Australia again, have introduced or strengthened their malus provisions. However, Australia is the only jurisdiction to apply these provisions across all three sectors (ADIs, insurers, and superannuation).

More broadly, APRA-regulated companies must apply malus to individuals’ variable remuneration arrangements. Check our past research on malus disclosure for ASX100 entities HERE.

Nine jurisdictions implemented changes to deferral periods, with five  (including Australia), increasing the minimum deferral periods in the banking sector. India and the UK introduced sector-specific deferral requirements, while Hong Kong, Singapore, and Australia implemented specific deferral rules.

Australia’s CPS511 wins the “most onerous” prize again. Its minimum deferral period for APRA-regulated entities has increased to six years for CEOs, five years for senior managers, and four years for highly paid MRTs. This is the longest minimum requirement among the surveyed jurisdictions.

4. Clawback

Clawback is widely regarded as the most challenging tool to implement due to significant legal, administrative, and cultural obstacles. Strong labour laws in some jurisdictions prevent the reclamation of already paid compensation. In other cases, the retrospective proof of misconduct, associated legal costs, and the enforceability of contracts—especially when recovering funds from former employees—limits its effectiveness. Culturally, staff resistance and attempts to circumvent clawback provisions have been issues.

Since 2021, six jurisdictions have implemented clawback provisions on variable remuneration. Most focus on setting minimum clawback periods or disclosing policies.

Again Australia gets 1^st prize for most onerous regulation.

It is the only jurisdiction requiring the variable compensation of executives and other highly paid MRTs in significant financial companies to be subject to clawback for at least two years from the date of payment or vesting, across superannuation, banks and insurers.

Non-financial measurements pertinent to risk

The use of non-financial metrics presents further challenges in accounting for risks in the remuneration framework. Despite this, Australia (leading with its jaw again?) and seven other jurisdictions have implemented changes related to sustainability risks, ESG goals, misconduct risk, board oversight, conflict-of-interest management, and compensation practices.

Variable pay now just too hard?

Participants highlighted that increasingly complex compensation structures are difficult to implement and communicate. The over-emphasis on consequences can create a culture of fear and push companies to increase fixed pay to offset adjustable variable remuneration. In Australia this has been evident in extent that banks have replaced performance share units with restricted share units, and superannuation funds having hardly any incentive pay at risk.

See HERE for the FSB report.

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