BCBS 194

From Open Risk Manual


BCBS 194 is a document published by the Basel Committee on Banking Supervision on May 2011 in the Risk Management category.


Range of methodologies for risk and performance alignment of remuneration - final version.


Ensuring that remuneration is effectively aligned with risk and performance is an essential element for reducing incentives that may arise from the design of remuneration schemes and that can lead to excessive risk taking. In practice, the idea that an employee's compensation should take account of the risks that employees take on behalf of their organisation has proven to be challenging to implement.

The Basel Committee's report on the Range of Methodologies for Risk and Performance Alignment of Remunerationanalyses the methods used by banks for incorporating risk into bonus pools and individual compensation schemes. Banks use various methods to adjust remuneration to take account of risk and performance. Depending on the remuneration scheme's design and detailed features, the effectiveness of such methods in creating incentives for prudent risk taking varies significantly.

The report focuses on the practical and technical issues that might reduce the effectiveness of these methods. It also covers more general questions, including proportionality in the application of rules. The report, which contains a number of examples of banks' practices reflecting the supervisory experience to date, helps provide a representative, though perhaps still incomplete, picture of current remuneration practices in the industry. By providing clarification on the design of risk-adjusted remuneration schemes and by highlighting issues that may affect the effectiveness of the risk adjustment methodologies, the Committee expects the report will help support and facilitate the broader adoption of sound compensation practices in the banking sector.

A consultative version of this paper was released for public comment in October 2010. The Committee wishes to thank those who have taken the time and effort to express their views on the consultative document.

Document Profile

See Also


For definitive information on regulatory matters always consult primary sources, especially where it concerns legally binding rules and regulations.

The above regulatory document abstract is quoted verbatim in this Open Risk Manual entry and provided free of charge for the convenience of all internet users. There is no explicit or implicit endorsement of this web service by the Bank of International Settlements. The copyright of the included material rests with the original authors (Links to the original texts are duly provided).