PRA clawback consultation: cp6-14 – an NAPF response
The NAPF agrees that the remuneration policies of banks, and public companies more generally, should include the ability for payments to be both adjusted and in more extreme cases recovered, we question whether the approach being proposed is appropriate or necessary.
We believe it is right that companies should ensure their executive remuneration policies include provisions that allow the company, in transparent circumstances, to adjust or recover awards - we of course do not want to see payments for failure. However, we believe that the proposed approach risks incentivising further movements away from variable to fixed pay which would be at the expense of creating positive alignment between shareholders and management, as well as making business more highly geared operationally and thus potentially more unstable.
Instead of a focus on clawback as prescribed within the consultation document, we propose that more flexibility is offered as to how firms seek to align the interests of executives with those of long-term shareholders and include mechanisms to prevent payment for failure. As per some of the recommendations of the Parliamentary Commission on Banking Standards (PCBS), attention should instead be directed towards extending deferral and holding periods and encouraging the bulk of variable rewards of senior bank staff to flow over time from the benefits of being an equity owner.