14.2.2 The ex ante risk adjustment in the award process

248.Institutions should determine the bonus pool and variable remuneration to be awarded based on an assessment of performance and risks taken. The adjustment for risks before the award is made (‘ex ante risk adjustment’) should be based on risk indicators and ensure that the variable remuneration awarded is fully aligned with the risks taken. The criteria used for the ex ante risk adjustment should be sufficiently granular to reflect all relevant risks.

249.Depending on the availability of risk adjustment criteria, institutions should determine at what level they apply ex ante risk adjustments to the calculation of the bonus pool. This should be at the level of the business unit or at the level of organisational substructures thereof, e.g. the trading desk or the individual staff member.

250.Risk alignment should be achieved by using risk-adjusted performance criteria, including performance criteria that are adjusted for risk based on separate risk indicators. Quantitative and qualitative criteria should be used.

251.The ex ante risk adjustments made by institutions, where based on quantitative criteria, should largely rely on existing measures within the institutions used for other risk management purposes. Where adjustments to such measures are made within risk management processes, institutions should also make consistent changes in the remuneration framework. Quantitative criteria include:

• a. economic capital, economic profit, return on risk-weighted assets and return on allocated equity;
• b. the cost and quantity of the capital required for the risks of its activities, whereas the distribution of capital costs should reflect the risk profile of the institution and the whole of the institution’s equity should be fully allocated and charged;
• c. the cost and quantity of liquidity risk assumed in the course of business;
• d. indirect liquidity costs (i.e. mismatch liquidity costs, cost of contingent liquidity risk and other liquidity risk exposures that an institution may have).

252.When measuring the profitability of the institution and its business units, the measurement should be based on the net revenue where all direct and indirect costs related to the activity are included. Institutions should not exclude costs of corporate functions, e.g. IT costs, group overheads or discontinued businesses.

253.Institutions should make qualitative ex ante risk adjustments when determining the bonus pool and identified staff’s remuneration through, for example, the use of balanced scorecards that explicitly include risk and control considerations such as compliance breaches, risk limit breaches and internal control indicators (e.g. based on internal audit results) or other similar methods.

1. Översikt

1.1 Referenser

1.2 Identifierade krav

1.3 Relaterade standarder

2. Identifierade krav

3. Relaterade standarder

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