The AICD supports APRA in its aim to engage in stronger supervision of remuneration frameworks and focus on non-financial risk management. However, the AICD is concerned about the unintended consequences of high levels of prescription and looks forward to being an active participant in the consultation.

AICD Managing Director and CEO Angus Armour said “Aligning remuneration outcomes more clearly to non-financial metrics and longer vesting periods for variable remuneration are sound principles for boards to engage with.

“However, the desire for better outcomes in the longer term should not lead to overly-prescriptive standards that undermine the ability of the board to set remuneration policies that align with the company’s needs and strategy at a given point in time.

“In our view, some of the specific proposals from APRA including the 50 per cent cap on financial metrics represent a significant step by an Australian regulator, away from a principles-based approach and towards a prescriptive regime.

“In addition, it is unclear that the proposed requirements are realistic in terms of the breadth and detail of work to be added to the board’s role.

“Expanding the board’s role to approve remuneration arrangements and outcomes for a significantly expanded number of employees may prove difficult in practice and undermine the traditional oversight and governance role of the board.

“We must also carefully consider how the proposed requirements intersect with the existing two-strikes rule with boards under constant pressure to recognise competing tensions from different sets of stakeholders – investors, proxy advisers, regulators and customers.

“These are issues that we need to test in the consultation period, and the AICD looks forward to being an active participant in this process.”

Media Contact: Maegen Sykes 0439 167 567

The AICD is the independent and trusted voice of governance, building the capability of a community of leaders for the benefit of society. Our membership of more than 44,000 includes directors and senior leaders from business, government and the not-for-profit sectors.