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We have endorsed the principles on pay and compensation in significant financial institutions developed by the FSF to ensure compensation structures are consistent with firms’ long-term goals and prudent risk taking. We have agreed that our national supervisors should ensure significant progress in the implementation of these principles by the 2009 remuneration round. The BCBS should integrate these principles into their risk management guidance by autumn 2009. The principles, which have today been published, require:
Ø firms' boards of directors to play an active role in the design, operation, and evaluation of compensation schemes;
Ø compensation arrangements, including bonuses, to properly reflect risk and the timing and composition of payments to be sensitive to the time horizon of risks. Payments should not be finalised over short periods where risks are realised over long periods; and
Ø firms to publicly disclose clear, comprehensive, and timely information about compensation. Stakeholders, including shareholders, should be adequately informed on a timely basis on compensation policies to exercise effective monitoring.
Supervisors will assess firms’ compensation policies as part of their overall assessment of their soundness. Where necessary they will intervene with responses that can include increased capital requirements.
Full G20 declaration on strengthening the financial system