City watchdog urges firms to link pay to consumer outcomes as bonus cap is lifted
The Financial Conduct Authority (FCA) has called for firms to link executive pay to consumer outcomes as the City prepares to lift the cap on bonuses.
In a letter to the chairs of remuneration committees at banks, building societies and investment firms, the Financial Conduct Authority (FCA) urged firms to consider customers in pay decisions.
“Your role is key in ensuring that your firm’s remuneration policies and practices continue to incentivise a consumer-centred approach,” the letter said.
The missive argued the flagship Consumer Duty should be a key priority for firms when considering staff pay, suggesting that pay could be docked if firms fail to make progress on implementing meaningful reforms.
The new principle aims to ensure firms deliver good outcomes for consumers on the quality and price of products and services, and make sure a higher standard of consumer support is provided.
“We encourage you to consider how you can use relevant risk metrics and performance criteria to help inform both individual and firm-wide remuneration decisions, including making remuneration adjustments if progress in embedding the Duty falls short,” the letter said.
The intervention comes on the same day that the cap on bankers’ bonuses has been lifted in a bid to boost the City’s competitiveness.
The FCA noted that removing the cap gives firms a greater ability to adjust pay to “absorb losses in a downturn, or to respond to any material poor performance or misconduct that subsequently comes to light”.
Alasdair Steele, a corporate Partner with law firm CMS, said “the FCA has noted the increased flexibility which variable remuneration gives firms but highlights their expectation that they should use tools such as risk metrics and performance criteria (including behavioural standards) to adjust remuneration appropriately,”
City pay is a hot top at the moment with London Stock Exchange boss Julia Hoggett arguing that the capital has been underpaying its top talent.
She said firms struggled to attract global talent while pay levels were “significantly below global benchmarks”.