FCA Dear Remuneration Committee Chair letter on approach to remuneration for 2021/22

On 3 August 2021, the FCA published a Dear Remuneration Committee Chair letter setting out its approach to remuneration for 2021/22 and highlighting areas for firms to consider.

Key areas of focus are:

Diversity – the FCA reiterates that increasing diversity and fostering an inclusive environment is a key element of a healthy culture.  Firms should review pay data across all protected characteristics and to act swiftly to address any disparities;

Non-financial performance measures – the FCA expects to see more firms using such measures in scorecards to support ESG factors;

Remuneration policies - firms should ensure that their remuneration policies and approach to paying variable remuneration adapt and evolve in the continuing context of the pandemic and should remain satisfied that their remuneration policies are aligned with their firm's purpose, business strategy and values and incentivise the right behaviours;

Accountability –the Senior Managers and Certification Regime (SM&CR) is a key tool to ensure high standards of conduct and culture within firms and can provide a clear and evidenced link between behaviours and remuneration outcomes.  Appropriate and timely ex-post risk adjustments should be made for instances of poor behaviour or misconduct and the reasons for adjustments should be transparent to the individuals concerned.

Remuneration approach for 2021/2 - in line with the PRA's May 2021 statement firms should submit their remuneration policy statement (RPS) by 30 September 2021 together with:

• a short summary of the key points in the RPS with cross-references to the full RPS, including any key changes made in the last year; and
• an explanation of how the Remuneration Committee Chair has assured themselves that the firm's overall remuneration policies support the firm's purpose, business strategy and values and incentivise the right behaviours, and how the firm's approach to paying variable remuneration will be considered in the continuing context of the COVID-19 pandemic.

The letter also refers to the Financial Stability Board's peer review of how the UK has implemented its remuneration standards, which was published in April 2021 and states that firms may find it useful to consider whether there are any points that they could incorporate into their remuneration policies and practices.