Remuneration Framework

Definition

The Remuneration Framework of an organization is the set of contractual or other arrangements that compensate its staff for its services. It is particularly important in the context of Internal Governance and Risk Management in view of the incentives it generates.

Elements of the remuneration framework

• Fixed Remuneration (Salaries)
• Variable Remuneration (Bonuses)

EBA Requirements in Credit Granting Context

As part of the requirements of institutions’ remuneration policies set out in Articles 74, 75 and 92 of Directive 2013/36/EU and the EBA Guidelines on remuneration policies and practices related to the sale and provision of retail banking products and services, the EBA Guidelines on sound remuneration policies under Articles 74(3) and 75(2) of Directive 2013/36/EU and disclosures under Article 450 of Regulation (EU) No 575/2013, and Article 7 of Directive 2014/17/EU, institutions’ remuneration policies and practices should be in line with the approach to credit risk management, credit risk appetite and strategies, and should not create a conflict of interest.

Remuneration policies and practices applicable to staff, and in particular identified staff engaged in credit granting, credit administration and monitoring, should be consistent and not provide incentives for risk taking that exceeds the tolerated risk of the institution, and should be aligned with the business strategy, objectives and long-term interests of the institution. In addition, remuneration policies and practices should incorporate measures to manage conflicts of interest, with a view to protecting consumers from undesirable detriment arising from the remuneration of sales staff.

Institutions’ remuneration policies and practices should, in particular, ensure that the performance and risk measurement process to determine the variable remuneration of the staff involved in credit granting includes appropriate credit quality metrics that are in line with the institution’s credit risk appetite.

See Also

• EBA Guidelines on Loan Origination and Monitoring