Exposure for banks' risky business
While all listed companies must release a remuneration report to their shareholders, the financial regulator will soon require banks to reveal additional information on the pay of a wider range of staff.
The change, part of a global push to ensure responsible remuneration in banks, will mean lenders must disclose the pay of "senior managers, material risk-takers and risk and management personnel".
A discussion paper from the Australian Prudential Regulation Authority, published on Tuesday, said staff who would be affected included people who make decisions that can affect a bank's financial standing, people who implement and enforce policies on behalf of the board, and those responsible for managing risk.
The new rules will apply to the first reporting period after July.
Bankers' pay arrangements are seen as one factor that contributed to the global financial crisis.
While it has not been a major problem in Australia, some bankers overseas received hefty bonuses for high short-term profit growth, with little regard for the longer-term consequences.
The changes are most likely to affect the big four banks, which already disclose the pay of their chiefs and top executives.
Frequently Asked Questions about this Article…
APRA has proposed rules forcing banks to publish the pay packets of “material risk-takers” and to disclose additional information on the pay of a wider range of staff. The changes are aimed at ensuring bankers aren’t rewarded for reckless behaviour that could damage the financial system.
The rules target senior managers, material risk-takers and risk and management personnel. APRA’s discussion paper says this includes people who make decisions that can affect a bank’s financial standing, those who implement and enforce board policies, and those responsible for managing risk.
The new requirements will apply from the first reporting period after July, meaning banks must include the expanded pay disclosures in reports for the next reporting cycle that begins after that month.
The changes are part of a global push to ensure responsible remuneration in banks. Bankers’ pay arrangements were seen as a factor in the global financial crisis—bonuses tied to short-term profit growth encouraged risky behaviour—so APRA wants to reduce incentives for reckless decision-making.
All listed companies already must release a remuneration report to shareholders, but APRA’s new rules specifically require banks to reveal additional pay information for a wider range of staff beyond those standard reports.
The changes are most likely to affect the big four banks, since they have the scale and range of senior and risk-related roles covered by the proposal. Those big banks already disclose the pay of their chiefs and top executives, but the new rules expand the scope of disclosure.
Greater pay transparency gives investors more insight into whether a bank’s incentive structures reward short-term profit at the expense of long-term safety. That can help shareholders assess governance, risk culture and whether management incentives align with sustainable performance.
Under APRA’s proposal, banks will need to publish the pay packets of material risk-takers and provide additional information on the pay of senior managers, risk and management personnel—broadening disclosure beyond the usual top-executive remuneration data.
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