Many experts believe that weaknesses in banks' incentive systems strengthened the impact of the recent global financial crisis.
In particular, they point to the following practices, typical of the compensation systems found in the industry:
- Insufficient or no consideration of risk in the basis used to calculate variable compensation
- Calculation periods that are too short to reflect how risk develops over time
- Disparity between the share of variable compensation in total compensation and an individual's responsibility for risk
As a result, one of the core elements in the regulatory requirements for banks' compensation systems is calculating an individual's contribution to the bank's performance on a sustainable basis. This should take into account the true risk potential and the cost of the equity employed.
hkp/// group helps companies design and implement risk-adjusted performance measurement processes at an institutional and organizational level. We also develop suitable incentive and performance parameters for risk-generating and risk-controlling employees within the framework of individual performance management systems.
Besides sustainable performance measurement as a basis for determining variable compensation, hkp/// develops sustainable compensation models that take deferred payments and special payment conditions into consideration.
If requested, we can also support your HR team with our expertise or provide specialist staff on a temporary basis. The type of support we provide and the level of consultant involvement depends on your individual needs.
* Photo by patricia serna on Unsplash
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