Recommendations for national supervisors: Reporting on the use of compensation tools to address potential misconduct risk
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The Recommendations are directed to the relevant national supervisory authorities for firms in all financial sectors. They build on national supervisory work and existing international efforts including Basel Committee Pillar III disclosures on compensation. They will help supervisors understand whether governance and risk management processes at financial institutions:
Appropriately include conduct considerations in the design of their compensation and incentive systems, including the setting of individual goals, ex ante performance measurement mechanisms and ex post compensation adjustments;
Support the effective use of compensation tools in combination with other performance management tools to help promote good conduct or to remediate misconduct;
Promote wider risk management goals, including for conduct issues, consistent with the firm’s strategy and risk tolerance; and
Support the effective identification of emerging misconduct risks and appropriate review of incentive systems and compensation decisions in response to conduct incidents to ensure alignment of incentives, risk and reward.