The Royal Commission’s Report on Misconduct in Remuneration of Executives

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The Royal Commission’s Report on Misconduct in Remuneration of Executives
Student Name
Institutional Affiliation

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Table of Contents
Introduction......................................................................................................................................3
Terms of Reference (TOR)..............................................................................................................3
Limitations to the Inquiry............................................................................................................5
Executive Remuneration..................................................................................................................5
Designing Executive Remuneration Systems..................................................................................7
Experimentation in the design of remuneration systems.............................................................8
Proportion of fixed and variable remuneration............................................................................9
Design of variable remuneration.................................................................................................9
Availability of claw-back............................................................................................................9
Implementation-related issues.........................................................................................................9
Risk-related adjustments............................................................................................................10
Supervision of Implementation..................................................................................................10
Disclosure of consequences.......................................................................................................10
Conclusion.....................................................................................................................................10
References......................................................................................................................................12

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Introduction
Australia has one of the most established banking systems in the whole world. The banking,
financial, and superannuation services in Australia are considered to be among the best globally.
However, there have been recent misconducts in the banking, financial, and superannuation
services’ industry in Australia. There were revelations of greed culture in financial entities,
money laundering with drug-trafficking organizations, terrorism financing, and ignorance of the
statutory obligations. Sir Peter Cosgrave (Governor-General, “Commonwealth of Australia”)
established the “Royal Commission into the Banking, Superannuation, and Financial Services
Industry” on 14th December 2017 to research and report on whether the behavior, conduct, and
practices of the financial entities in the industry amounted to misconduct or violated the
standards and expectations of the Commonwealth community1.
Terms of Reference (TOR)
TOR defines the scope or structure of the inquiry; the Royal Commission was supposed to
undertake. In accordance with the “Royal Commissions Act 1902”, the Governor-General
directed the commission to inquire on: “
a. whether the entities dealing with financial services (this includes directors, employees,
officers of or any person representing the institutions) might have engaged in
inappropriate practices (misconduct), and whether there were to be any criminal or legal
action instigated against such entities by the relevant Commonwealth Authorities
b. whether the financial services institutions engaged in any conduct, behaviors, business
activities or practices that did not meet the “expectations and standards of
Commonwealth”
c. “whether the superannuation retirement savings of members of the financial services
institutions, used for any purpose, meet the expectations and standards of the community”
d. whether the outcomes of (a), (b), and (c):
1 Scott Atkins and Phil Charlton. "Chartered secretary: The banking royal commission final report: Culture and
governance implications." Governance Directions 71.2 (2019): 65.

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i. “are attributable to the particular culture and governance practices of a financial
services entity or broader cultural or governance practices in the relevant industry
or relevant subsector”; or
ii. “result from other practices, including risk management, recruitment, and
remuneration practices, of a financial services entity, or in the relevant industry or
relevant subsector”;
e. “the effectiveness of mechanisms for redress for consumers of financial services who
suffer detriment as a result of misconduct by financial services entities”;
f. “the adequacy of:
i. existing laws and policies of the Commonwealth (taking into account law reforms
announced by the Commonwealth Government) relating to the provision of
banking, superannuation, and financial services; and
ii. the internal systems of financial services entities; and
iii. forms of industry self-regulation, including industry codes of conduct”;
g. “to identify, regulate and address misconduct in the relevant industry, to meet community
standards and expectations and to provide appropriate redress to consumers”;
h. “the effectiveness and ability of regulators of financial services entities to identify and
address misconduct by those entities”;
i. “whether any further changes to any of the following are necessary to minimize the
likelihood of misconduct by financial services entities in future (taking into account any
law reforms announced by the Commonwealth Government):
i. the legal framework;
ii. practices within financial services entities;
iii. the financial regulators”
j. “any matter that has occurred or is occurring overseas, to the extent the matter is relevant
to a matter mentioned in paragraphs (a) to (h)”;
k. “any matter reasonably incidental to a matter mentioned in paragraphs.”2
The commission was given the power to investigate the matter to the extent of the good
governance, peace, and order of the Commonwealth and make recommendations out of it.
2 Scott Atkins and Phil Charlton. "Chartered secretary: The banking royal commission final report: Culture and
governance implications." Governance Directions 71.2 (2019): 65.