A report published Friday by the Financial Stability Board aims to help regulators address the risk of misconduct through compensation mechanisms.
The report includes recommendations to regulators on compensation data reporting to address potential misconduct risk at major financial institutions.
“In recent years, supervisors and firms have directed significant attention to improving compensation governance and risk adjustment practices,” the FSB says in a news release. “They have focused more intensively on the impact compensation and related performance management mechanisms can have on incentives, and the role they can play in addressing misconduct risks.”
The recommendations will help regulators: understand whether governance and risk management processes at financial institutions properly consider employee conduct in the design of their compensation and incentive systems; enable the effective use of compensation tools to help promote good conduct; promote firms’ risk management goals; and support the identification of emerging misconduct risks.
The recommendations make up part of the FSB’s overall plan to deal with the risk of industry misconduct.