Dear Chair of the Remuneration Committee | Release Date: 28th August 2019
To read a longer summary of this Dear Chair of the Remuneration Committee letter, click here.
To access the original FCA document, click here.
Short Summary
The Financial Conduct Authority (FCA) has communicated key findings from the 2018/19 Remuneration Round, detailing its future assessment strategies for the 2019/20 period for firms under its supervision. The letter underscores the integral role of firms’ culture and governance in shaping remuneration and recognition practices. It emphasises that such practices should foster healthy workplace cultures and prevent behaviours that could harm consumers or market integrity.
During the 2018/19 review, the FCA, along with the Prudential Regulation Authority (PRA), evaluated the remuneration policies of level 1 firms, noting improvements in integrating conduct considerations into their policies. The FCA plans to continue its focus on how these firms ensure their remuneration strategies align with their organisational values and promote appropriate behaviours.
A particular area of interest for the FCA is the implementation of ex-post risk adjustments. The authority notes that while firms are adjusting awards to reflect poor performance and misconduct, justifications for the levels of these adjustments often lack clarity. The FCA expects firms to demonstrate consistency in their judgement regarding adjustments and to make timely corrections where necessary.
The FCA also highlights the importance of diversity and inclusion as essential components of a firm’s culture, influencing decision-making and mitigating risks like groupthink. The upcoming review will assess how remuneration policies support broad diversity initiatives and contribute to a more inclusive work environment.
Firms are required to submit their Remuneration Policy Statement (RPS) along with a summary that reflects significant changes and explains how remuneration practices are designed to prevent potential harms and foster positive consumer outcomes.
Key Take-away and Actions:
Firms should review their remuneration practices to ensure they align with FCA expectations, particularly focusing on proper implementation of risk adjustments and supporting diversity and inclusion. They must prepare and submit detailed remuneration policy documents that demonstrate compliance with FCA standards and contribute effectively to cultivating a responsible and inclusive corporate culture.