Risk and compliance pivotal in setting compensation

A new code of conduct from the FSA aims to establish best practice for remuneration at regulated firms

The argument over fair compensation for banking executives is threatening to run and run as politicians get further embroiled in the fairness of RBS's Fred the Shred's pension pot. The media cannot seem to get enough of vilifying grossly overpaid, failed bankers. But no one has spared a thought for those thousands of middle-tier banking employees that work hard for a living and have come to rely on their bonus as part of their wages. And this is threatening to drive an industry-wide increase in salaries for the banking sector.

Although the FSA has been clear it will not enforce caps or set levels of remuneration for FRS-regulated firms, its recently published code of conduct shows how seriously it is taking the issue. Under its new code, risk and compliance functions in banks are expected to take a pivotal role in setting the compensation arrangements for employees, to ensure all packages are consistent with the firms' risk management strategy. The FSA recognises people risk, such as the compensation issue, is one of the most significant risks a financial organisation faces. And as all operational risk is people risk in some format, this is one document op risk managers need to take heed of. It all seems rather reasonable to me, and should form a basis for best practice in this area. But you might disagree - if so I would love to hear you thoughts on the issue.