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Banks shall ensure that the incentives provided by their remuneration system take into consideration risk, capital, liquidity and the likelihood and timeliness of earnings.
29.
An employee’s remuneration should take into account all existing and potential risks including difficult-to-measure risks such as liquidity, cost of capital, reputation, regulatory and misconduct risks. Furthermore, the size of the variable remuneration pool and its allocation within the bank should take into account the full range of risks.
30.
The processes for managing misconduct risks through remuneration system should include, at a minimum, ex ante processes that embed non-financial assessment criteria such as the quality of risk management, degree of compliance with laws and regulations and broader conduct objectives of the bank, including fair treatment of customers, into individual performance management and remuneration at all levels of the bank and as part of the broader governance and risk management framework. Such processes should be supported by ongoing programs including formal training courses that reinforce appropriate standards of behavior.
31.
Control functions and Human Resources function should be adequately involved in remuneration design and decision-making to ensure effective remuneration incentives in addressing misconduct risk.
32.
Remuneration payments should be sensitive to the time horizon of risks and, if needed, the variable component of remuneration should be deferred where risks are realized over long periods.
33.
Banks shall employ an appropriate technique/criteria to adjust their accounting profits for the full range of identifiable risks keeping in view the size and complexity of its operations.
34.
Adequate amounts of variable remuneration should be placed at risk of reduction, to help alignment of remuneration outcomes with adverse outcomes and/or risks that may manifest only with time.
