The Financial Conduct Authority (FCA) has continued its drive to support diversity and inclusivity in the financial services industry by telling firms to mend their pay award structures.
The regulator warned firms that it expects to see greater use of non-financial measures for deciding bonuses this year.
And it wants businesses to assess pay across their organisations with particular regard to protected characteristics and correct any disparities.
It also emphasised the need to punish poor behaviour and be clear with individuals about why they were seeing their pay hit.
In a letter to remuneration committees published today, the regulator set out the importance of remuneration committees and policies and highlighted that their approach to variable pay had to adapt and evolve in the continuing context of the pandemic and societal changes.
“During these challenging times, we have observed firms redefining their purpose to support the issues that really matter to them and in the context of environmental, social and governance (ESG) issues, particularly the social element,” it said.
“We expect to see more firms using non-financial measures in scorecards to support ESG factors.”
‘Act swiftly’ on pay disparities
Regarding diversity and inclusivity and how this should be reflected in pay policies, the FCA continued: “Increasing the diversity of your workforce and fostering an inclusive environment, where every member of staff is valued for their contributions, is a key element of a healthy culture.
“We recognise the steps firms have already taken to embed diversity and inclusion but there is much more that needs to be done.
“We urge you to review pay data across all protected characteristics and to act swiftly to address any disparities.”
And the FCA was equally determined with regard to accountability and poor behaviour by regulated individuals.
“The Senior Managers and Certification Regime (SM&CR) is a key tool to ensure high standards of conduct and culture within your firm and can provide a clear and evidenced link between behaviours and remuneration outcomes,” it said.
“For instances of poor behaviour or misconduct, ex-post risk adjustments should be made which are appropriate and timely. The reasons for adjustments should be transparent to the individuals concerned.”