The Basel Committee on Banking Supervision has issued the Compensation Principles and Standards Assessment Methodology which seeks to foster supervisory approaches that are effective in promoting sound compensation practices at banks and help support a level playing field.
"The methodology provides a comprehensive set of tools for supervisors to assess compensation practices in an effective and consistent manner," remarks Fernando Vargas, chairman of the Basel Committee's Task Force on Remuneration.
The methodology will help supervisors assess a firm's compliance with the Financial Stability Board's 'Principles for Sound Compensation Practices' and related implementation standards. This will contribute to ongoing implementation of the principles and standards, including the Financial Stability Board's (FSB) current thematic review of national and firm implementation. Consistent with the FSB 'Principles for Sound Compensation Practices', the methodology is structured based on the following themes:
- Effective governance of compensation
- Effective alignment of compensation with prudent risk taking
- Effective supervisory oversight and engagement by stakeholders
Nout Wellink, chairman of the Basel Committee and president of the Netherlands Bank, notes that the use of the methodology will promote appropriate compensation practices that create the right incentives for effective risk management and avoiding excessive risk-taking.
