14.1.2 Risk-sensitive performance criteria

225.Institutions should set and document both quantitative and qualitative, including financial and non-financial, performance criteria for individuals, business units and the institution. The performance criteria should not incentivise excessive risk taking or mis-selling of products.

226.Institutions should use an appropriate balance between quantitative and qualitative as well as absolute and relative criteria.

227.The criteria used to measure risk and performance should be linked as closely as possible to the decisions made by the identified staff member and the category of staff members that is subject to the performance measurement and should ensure that the award process has an appropriate impact on staff’s behaviour.

228.Performance criteria should include achievable objectives and measures on which the identified staff member has some direct influence. For example, variables at individual level for a lending officer could be the performance of loans originated or monitored by that person, while for the manager of a business unit it could be the performance of the management team of that unit. When assessing performance, the results and outcomes actually realised should be measured.

229.Quantitative criteria should cover a period which is long enough to properly capture the risk taken by identified staff members, business units and the institution and should be risk adjusted and include economic efficiency measures. Examples of performance criteria are risk-adjusted return on capital (RAROC), return on risk-adjusted capital (RORAC), economic profit, internal economic risk capital, net economic contribution, risk-adjusted cost of funding, risk figures derived from the internal capital adequacy assessment process or financial figures which relate to the budget of functions (e.g. for corporate function, including legal and human resources) or to their operational risk profile, or pure accounting adjustments.

230.Operating efficiency indicators (e.g. profits, revenues, productivity, costs and volume metrics) or some market criteria (e.g. share price and total shareholder return) do not incorporate explicit risk adjustment and are very short term and therefore not sufficient to capture all risks of the identified staff member’s activities. Such performance criteria require additional risk adjustments.

231.Qualitative criteria (such as the achievement of results, compliance with strategy within the risk appetite and compliance track record) should be relevant at an institution, business unit or individual level. Examples of qualitative criteria are the achievement of strategic targets, customer satisfaction, adherence to risk management policy, compliance with internal and external rules, leadership, teamwork, creativity, motivation and cooperation with other business units, internal control and corporate functions.

1. Forbhreathnú

1.1 Tagairtí

1.2 Ceanglais aitheanta

1.3 Caighdeáin ghaolmhara

2. Ceanglais aitheanta

3. Caighdeáin ghaolmhara

• EBA - Published by the European Banking Authority at https://www.eba.europa.eu/