PRA and FCA consultation - Strengthening the alignment of risk and reward: the new remuneration rules – an NAPF response
The NAPF believes that remuneration should be proportionate and aligned with shareholder interests and long-term sustainable value creation. We also consider that the best form of alignment with shareholders is the ownership of shares over the long-term, with ownership obligations increasing with seniority.
In the above context we have a fair degree of empathy with the objectives which lie behind these proposals, in particular the drive to require senior individuals and material risk takers within banks to receive a greater proportion of their remuneration over a lengthier period of time in order to increase the alignment with shareholders and importantly to focus minds on a more appropriate time horizon. However, we do have some concern that the new proposals risk inhibiting any flexibility and prescribing a specific pay structure which includes unnecessary complexity. In turn, the overall quantum may increase, or shift more pay towards fixed allowances, in order to compensate for the additional discounting applied to awards by the individuals involved.
We encourage the regulators to focus on the objective of requiring individuals to build up large shareholdings, held for an appropriate period of accountability.