Effective Alignment of Remuneration with Prudent Risk-Taking
HC-5.4.10
Remuneration must be adjusted for all types of risks.
Added: January 2014
HC-5.4.11
In relation to Paragraph HC-5.4.10, two employees who generate the same short-run profit but take different amounts of risk on behalf of their bank should not be treated the same by the remuneration system.
Added: January 2014
HC-5.4.12
Both quantitative measures and human judgement must play a role in determining risk adjustments.
Added: January 2014
HC-5.4.13
Risk adjustments must account for all types of risk, including intangible and other risks such as reputation risk, liquidity risk and the cost of capital.
Added: January 2014
HC-5.4.14
Banks' remuneration policies and practices must be designed to reduce employees' incentives to take excessive and undue risk.
Added: January 2014
HC-5.4.15
Remuneration outcomes must be symmetric with risk outcomes.
Added: January 2014
HC-5.4.16
The mix of cash, equity and other forms of remuneration must be consistent with risk alignment. The mix will vary depending on the employee's position and role and the bank must be able to explain the rationale for its mix to the CBB.
Added: January 2014
HC-5.4.17
Existing contractual payments related to a termination of employment must be re-examined, and kept in place only if there is a clear basis for concluding that they are aligned with long-term value creation and prudent risk-taking. Prospectively, any such payments must be related to performance achieved over time and designed in a way that does not reward failure.
Added: January 2014
HC-5.4.18
Banks must ensure that their employees commit themselves not to use personal hedging strategies or remuneration- and liability-related insurance to undermine the risk alignment effects embedded in their remuneration arrangements. Banks must ensure that appropriate compliance mechanisms are in place to monitor their employees commitment in this regard such as signed adherence by staff to the bank's code of ethics which should include the conditions outlined in this Paragraph.
Added: January 2014
