For example , a survey carried out by PricewaterhouseCoopers ( PwC ) in 2008 – in the immediate aftermath of the financial crash – found that only 13 % of financial staff surveyed felt regulation would be a major force for change in remuneration practices .
Ten years on and regulators will be hoping to do exactly this : To affect payscales and bonus policy with regulation .
In the same set of delegated acts published on 25 April 2016 remuneration is defined as : “ cash , shares , options , cancellations of loans , pension contributions , carried interest models , wage increases or promotions , health insurance , discounts , special allowances , expense accounts or seminars in exotic destinations .”
The regulation states that companies must have a remuneration policy which keeps in mind clients ’ interests without creating a conflict of interest . Compliance recruitment expert Daniel Halstead – chief executive at Kite Consulting Group – advises companies to offer staff financial incentives which are aligned with client satisfaction .
He explained : “ One useful tactic is to measure staff against client return on investment , rather than fees generated . [ This ] helps to keep everyone in the business focused on the thing that really matters .”
Where possible , companies are also advised to ensure that departments work together .
Experts say that communication between
TEST TO WHAT EXTENT COMMERCIALLY ATTRACTIVE REWARD STRUCTURES MAY ENCOURAGE BEHAVIOURS THAT POSE EXCESSIVE RISK TO A CLIENT ’ S BEST INTERESTS .
ANDREW GLESSING , HEAD OF COMPLIANCE , ALPHA FMC
compliance , risk , sales and audit teams can prevent a conflict of interest when it comes to pay and bonuses .
Andrew Glessing , head of compliance at Alpha FMC , says alignment between remuneration committees , HR and the compliance and risk departments will allow firms to “ test to what extent commercially attractive reward structures may encourage behaviours that pose excessive risk to a client ’ s best interests .”
PREVENTING CONFLICTS The MiFID II second set of delegated acts state that risk management and compliance staff must not have their objectivity compromised by how they are incentivised .
It is for this reason that the importance of remuneration committees has been underscored throughout MiFID II .
The Investment Association ’ s Executive Remuneration Working Group – the remuneration lobbying group for the buy-side – has done considerable work in this area .
Legal & General ’ s chief executive officer Nigel Wilson chairs the group . He has offered specific guidance to IA members on how remuneration outcomes should be fully aligned with business performance and strategy .
He says : “ Discretion should be used , both upwards and downwards rather than committees relying on formulaic outcomes .”
The fact that someone of Wilson ’ s seniority is leading this group is testament to the importance of the issue within the industry .
Under the new rules , senior management will be responsible for the day-to-day remuneration policy and monitoring compliance risks related to the policy .
Can this be achieved while still providing staff with ambitious financial incentives ?
Pay structures can no longer be based purely on measureable commercial criteria , but instead on regulations , client treatment and quality of service .
Developing the new success measures envisaged under MiFID II , such as assessing qualitative elements of job performance will become increasingly important .
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