Remuneration restrictions ‘problematic’: ASFA

The Association of Superannuation Funds of Australia (ASFA) has criticised the Draft Prudential Practice Guide CPG 511 Remuneration which has the risk of handicapping attracting and retaining talent in the industry.

In its submission on the draft guide, ASFA said Paragraph 63 of CPG 511 mentioned that deferral should apply to each component of individual remuneration which could be problematic to implement.

“Particularly when competing for talent with industries that do no need to comply with CPS 511,” ASFA said.

“ASFA recommends that deferral is applied to performance incentives that form part of variable remuneration.”

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ASFA said CPS 511 and CPG 511 continued to indicate that variable remuneration was an accountability component for an organisation.

“[Which implies] that it might be required for registrable superannuation entity (RSE) licensees to ensure that appropriate incentives are set for employees,” ASFA said.

“Not all RSE licensees have variable remuneration. The choice of having (or not) variable remuneration is made by each RSE licensee based on their individual circumstances.

“ASFA recommends APRA explicitly state that relevant parts of CPS 511 apply (or not) in circumstances where there is no variable remuneration to ensure there is clarity for RSE licensees. 

“ASFA also recommends further clarification be provided in relation to how RSE licensees can show appropriate steps were taken in consequence management where there is no variable remuneration component.”

ASFA said it sought further clarification for the reasons behind including service‐based awards as part of variable remuneration.

“Generally, service‐based awards are based on loyalty/length of service of an employee and do not have a performance component in its calculation,” ASFA said.

ASFA said requiring RSE licensees to address remuneration conflicts of service providers would significantly increase the compliance burden on APRA-regulated super funds.

“Particularly as it is unclear whether RSE licensees are required to conduct compliance checks on remuneration arrangements of services providers on an ongoing basis or at the start of engagement,” ASFA said.

“CPG 511 mentioned what a prudent board would consider in relation to whether a material weight is being applied effectively.

“ASFA would also note that, with the increased expectations surrounding weighting of particularly measures in remuneration design, it is becoming increasingly difficult for RSE licensees to design remuneration that is tailored to what is important to their organisation.

“Effectively it will homogenise remuneration design across organisations and dilute the important of strategic objectives of an RSE licensee when setting performance measures.”