WASHINGTON, DC - The Securities Industry and Financial Markets Association (Sifma) has released a set of guidelines for compensation, providing recommendations on how financial services firms can better tie compensation to long-term performance and appropriate risk management.
The guidelines reflect four key principles: that firms should establish compensation policies consistent with effective risk management; that compensation should be linked to sustainable performance; that risk management professionals should be appropriately independent; and that firms should communicate their compensation practices to shareholders.
"Restoring trust and confidence in the financial system must include a responsible approach to executive compensation," said Sifma president and chief executive officer Timothy Ryan. "Today the industry is setting a new standard that supports long-term performance and effective risk-management. Together, we can build a better system that aligns compensation with the interests of shareholders, safeguards the financial system and strengthens the economy."
Sifma's guidelines reinforce the central role and ultimate responsibility of the firm's board of directors in compensation practices and oversight. Risk management staff also play a critical role, by providing a vital link to the board or compensation committee to facilitate appropriate risk management.
The guidelines call for regulatory initiatives to be complementary - emphasising the board's central responsibility - and to preserve the industry's ability to operate dynamically and help drive economic growth.
They also encourage transparency to assist shareholders and other investors in understanding a firm's compensation structure, risk control processes and business strategy, while respecting confidentiality to ensure competitive differentiation among firms.
Sifma's guidelines reaffirm the fact that compensation policies must be designed to attract, motivate and retain the necessary talent.
The full guidelines can be found here.