Australia: Remuneration: Hayne and the concrete path of compensation of executives in financial services

In his Final Report, Commissioner Hayne emphasises the important connections between culture, governance and remuneration on the one hand and regulatory, compliance and conduct risks on the other. 

In particular, Hayne sees an entity’s remuneration arrangements as matters of design and implementation that “tell staff what the entity rewards and what the entity values”.

Hayne says that “no-one has identified an “ideal”…system of executive remuneration for financial service entities”.  However, it is clear from the evidence put before the Commission that good design can be undermined by bad implementation and vice versa.


Given one size of remuneration arrangement does not fit all, Hayne recognises there will be some experimentation in finding a compensation structure that is right for a particular financial services entity.  However, any type of remuneration system will only be effective if:

  • the systems are genuinely directed to encouraging good risk management and reducing the risk of misconduct; and
  • the results of applying the system are reliably identified and, if possible, measured.

With regard to executive performance, and in particular to its link with his “six simple ideas” (obey the law etc), Hayne asserts: “In the end, what is being assessed is not just what people do but how they do it. “What” can be measured; “how” cannot.”

One of the additional challenges in designing a remuneration policy is fixing the proportion of fixed and variable remuneration. Of course, there is no single right answer. Hayne says that the purposes of allowing variable remuneration must be clearly understood both by employer and employee. There is a clear link between this and the effective management of risk in an organisation: “effective management of risk will depend upon the criteria that will be applied in determining variable remuneration”.

If variable remuneration is to be a component of executive compensation, the criteria for assessing the variable award must include a strong link to the adequacy of the executive’s attitude to, and performance in, managing non-financial risk. The package must avoid what APRA observed as too much focus on total shareholder return measures as the basis for payment.


Much of what the Commission considered on remuneration focused on poor implementation of remuneration arrangements.  Remuneration arrangements can be designed very well, with, for example, a well-balanced set of criteria around financial performance (very measurable) and risk management (not so measurable).  But if they are not applied properly by the board or senior management, then culture and governance suffer, and ultimately poor outcomes are inevitable.

Hayne says that boards must get the right information about the risk position of their institution and whether serious conduct or other non-financial risk issues are emerging.  Without adequate information, boards cannot correctly apply policy and make judgments on variable remuneration.

Quite often it was only when serious risk issues found their way into the public domain that there was any impact on decisions on variable remuneration (judged in part on risk management criteria) – that is, accountability of an executive for compliance and misconduct issues was not reflected in downward adjustment of that executive’s pay.

Organisations need to understand that financial metrics should not solely determine remuneration. Both financial and non-financial risks must be taken into account in both the design and the implementation of a remuneration system.


Hayne sees a role for external supervision by regulators in the way that boards implement  remuneration arrangements.  Recommendation 5.3 states that APRA should require a board to make regular assessments of the effectiveness of its remuneration system to encourage sound management of non-financial risk.  Boards are on notice that APRA will concentrate on design and implementation and so they need to ensure their remuneration practices, and the frequency they consider them, must stand up to scrutiny.

Interestingly, APRA had indicated that in the recent past it may not have had the expertise to be able to confidently challenge a bank on its determination of variable remuneration.  The regulator (and by extension boards) will need to get used to this because Hayne is adamant APRA must develop that confidence and expertise as quickly as possible.

In addition, the advent of the BEAR regime on ADIs (and, in the future, most likely on other financial service entities) will not only provide entities and regulators with a clearer understanding of responsibilities within banks but also subject entities to deferral requirements in variable remuneration.  This will provide APRA with another avenue for supervision and monitoring in the area of executive compensation.

Finally, we do need to appreciate that remuneration is not the only way to encourage good behaviour or discourage bad behaviour.  Hayne makes the “unsurprising” observation that good management of staff produces good outcomes for the business and for the customer – and in making this observation he points to a skill that he clearly believes was lacking at critical moments within the Australian financial sector.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Sign Up
Gain free access to lawyers expertise from more than 250 countries.
Email Address
Company Name
Confirm Password
Mondaq Newsalert
Select Topics
Select Regions
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions