Compensation practices at large financial institutions were a key contributing factor to the global financial crisis. The FSB Principles for Sound Compensation Practices and their Implementation Standards (Principles and Standards, P&S) were developed to align compensation with prudent risk-taking, particularly at significant financial institutions.
The Principles require compensation practices in the financial industry to align employees' incentives with the long-term profitability of the firm. The Principles call for effective governance of compensation, and for compensation to be adjusted for all types of risk, to be symmetric with risk outcomes, and to be sensitive to the time horizon of risks. The Principles are intended to apply to all significant financial institutions but are especially critical for large, systemically important firms.
The Implementation Standards set out detailed specific proposals on compensation governance, structure and disclosure to strengthen adherence to the FSB Principles for Sound Compensation Practices.
The standards focus on areas in which especially rapid progress is needed, including:
The FSB website also provides links to the national regulations and supervisory guidance on compensation issued by member regulatory authorities. The FSB is not responsible for the content of external websites.