On Thursday, BlackRock published its submission to APRA, which said it had “concerns” with the plan to require non-financial targets to make up at least 50 per cent of bonus criteria.
“Our concerns lie in setting an overly prescriptive framework which results in a delineation between financial and non-financial risk rather than viewing the two as symbiotic and necessarily embedded throughout a firm’s strategy,” BlackRock said.
“Non-financial risks such as customer outcomes, conduct, compliance and reputational risk should be at the forefront of any firm’s strategy as better outcomes in these measures equals better financial outcomes.”
BlackRock also said non-financial targets could be hard for investors to assess and could be gamed by management. Instead, it recommended financial measures constitute “a majority of metrics” for bonuses, as financial targets were quantifiable, measurable and reflected a company’s success.
While it opposed APRA’s elevation of non-financial targets, BlackRock supported APRA’s call for boards to play a more active role. It also backed the regulator’s emphasis on longer deferral periods for shares granted as bonuses.
In a sign of a possible compromise, Mr Byres on Wednesday said he was not wedded to the proposed 50 per cent requirement for non-financial metrics.