Guest Comment: Remuneration structures come under the spotlight

Remuneration of senior management and risk-taking staff has been in the news recently due to its perceived contribution to the GFC. Critics claim that remuneration structures leading into the crisis incentivised staff towards short-term risk-taking instead of long-term company performance.

Britain's Financial Services Authority introduced strict guidelines in January governing remuneration structures for credit institutions and investment firms in the UK.

While it is not yet clear how definitive the Australian regulators are going to be regarding remuneration, APRA Chairman John Laker recently said there should be a focus on clawback of bonuses for poor performance, and a balancing of risk and reward.

Subsequent uncertainty about bonus levels has led to some financial institutions increasing base salaries for key employees. In some cases they have also made structural changes, such as an additional monthly payment to an employee as a reflection of what was previously an annual bonus.

If you're an employee, these measures simply ensure your remuneration reflects the continued effort you are putting in for your firm. After all, the workload and difficulty of being in financial services did not rescind during and following the GFC.

However, if you're an employer, there are a number of considerations that should be taken into account before changing remuneration structures.

1. Staff attraction/retention: If compensation reforms are not adopted in a uniform fashion across the market and the globe - and you're in a company or country that imposes restrictions - you may find it difficult to recruit and retain.

2. Legalities of changing structures: This is particularly important for recent hires from firms with more competitive structures. The concept of constructive dismissal may also apply when changing someone's remuneration level.

3. Discrimination: You need to examine whether structures such as long-term share/stock structures discriminate against certain employees, for example those with health consideration or those wishing to take maternity/paternity leave.

4. Misrepresentation: Both employers and recruiters must be careful how they represent remuneration packages to potential employees during the recruitment process to avoid misrepresentation and potential litigation associated with loss of income should misrepresentation occur.

Jacob Smith, associate director of risk, compliance & legal, Robert Walters