Performance, Risk and Compensation practices : Need for HR governance systems for finance stability

The recent restructuring of Financial Stability Forum - global watchdog on Compensation policies of Global Financial Institutions- has opened up the need for strengthnening HR governance on Compensation policies and practices within organisations especially Financial organisation. Some key steps detailed are :

• Compensation policies to be governed by CEO and Board of Directors
  
• A standing Governance Board to be instituted
  
• Performance and Risk to be balanced
  
• Compensation should not induce excessive risks
  
• should be linked to risk outcomes
  
• greater stakeholder engagement in policy formulation
  
• It should not be seen as just market wage or market linked
  
• should be transparent and detailed
  

In essence, the compensation practices should be governed based on intrinsic factors by internal stakeholders and not through the sermons given by consultants who augment market factors only. It seems  hr practices were equally responsible for the fiancial meltdown. Very often compensation policies are based on extraneous factors, based on consultant's advice, market salary surveys, inflation, nationality of employee and other less relevant factors.

 

Read full guidelines at : FSF guidelineshttp://www.fsforum.org/