14.2.1 Setting of bonus pools

238.Institutions should define one or more bonus pools for the period for which variable remuneration is awarded and calculate the overall institution-wide bonus pool as a sum of these bonus pools.

239.When setting the bonus pools, institutions should take into account the ratio between the variable and fixed components of total remuneration applicable to categories of identified staff, performance and risk criteria defined for the overall institution, control objectives and the financial situation of the institution, including its capital base and liquidity. The performance indicators used to calculate the bonus pool should include long-term performance indicators and take into account the realised financial results. A prudent use of accounting and valuation methods should be in place which ensures a true and fair evaluation of the financial results, capital base and liquidity.

240.The bonus pools should not be set at a certain level to meet remuneration demands.

241.Institutions should have appropriate processes and controls in place when determining the overall bonus pool.

242.Where institutions use a top-down approach, they should set the amount of the bonus pool at the level of the institution, which is then fully or partially distributed among the business units and control functions after the evaluation of their performance. The individual awards should subsequently be based on the assessment of the individual’s performance.

243.Where institutions set the bonus pool in a bottom-up approach, the process should start at the level of the individual staff member. Depending on the performance criteria by which staff are assessed, a bonus pool allocation should be made for the staff member; the bonus pool of the business unit and the institution equals the sums of potential awards allocated to the respective subordinated levels. The institution should ensure that the institution’s overall performance is appropriately taken into account.

244.When distributing the bonus pool to the level of the business unit or individual staff member, the allocation should be based as appropriate on predefined formulae and judgemental approaches. Institutions may use scorecards or other appropriate methods to combine different approaches.

245.When choosing the approach, institutions should take into account the following: formulae are more transparent and, therefore, lead to clear incentives, as the staff member knows all factors determining his or her variable remuneration. However, formulae may not capture all objectives, especially the qualitative ones, which can be better captured by judgemental approaches. The judgemental approach gives more flexibility to management and can, therefore, weaken the risk-based incentive effect of the performance-based variable remuneration. It should, therefore, be applied with appropriate controls and in a well-documented and transparent process. 246.Factors such as budget constraints, retention of staff and recruiting considerations, subsidisation among business units, etc. should not dominate the distribution of the bonus pool as they can weaken the relationship between performance, risk and remuneration.

247. Institutions should maintain records on how the bonus pool and staff’s remuneration were determined, including how estimates based on different approaches were combined.

1. Forbhreathnú

1.1 Tagairtí

1.2 Ceanglais aitheanta

1.3 Caighdeáin ghaolmhara

2. Ceanglais aitheanta

3. Caighdeáin ghaolmhara

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