Big Picture
Incentive compensation, both long term and short term, are not only important for attracting and retaining talent, but is a key component of a larger area of risk that financial institutions should regularly review. Financial institutions should be particularly mindful when developing incentive compensation programs for executives and those with considerable influence over decisions impacting an organization’s risk acceptance and control environment for products, services, and processes. When compensation includes incentives based on profit, business decisions to take imprudent risks to increase profitability can occur. Regulators have taken note, and review of incentive compensation programs is part of both compliance and safety and soundness
examinations.
Client Scenario
A large bank wanted to conduct an internal program assessment and modify the qualitative risk review component of the overarching incentive compensation program. Asurity Advisors was engaged to review those subjective components, as well as conduct benchmarking based upon the bank’s peers and provide the client with industry best practices.
Asurity Solution
Asurity Advisors leveraged industry experts to review the subjective portion of the updated incentive compensation program and assess if the modifications fully met the requirements of the company’s internal assessment. This was accomplished by requesting and reviewing multiple program documents, performance review procedures, and scoring methodologies. Additionally, Asurity identified and interviewed personnel involved in both the assessment and program enhancement processes. Asurity also conducted research to benchmark the company against similar financial institutions and provide industry best practices for the company’s consideration.
Upon completion of the review, Asurity developed a comprehensive findings and observations log with corresponding recommendations. After confirming factual accuracy of the findings and observations, Asurity issued a final report of its findings and an executive summary dashboard for presentation to senior management and the governing board committee.
Ultimately, the bank received independent assurance that modifications made to the program conformed to requirements of their internal assessment. Asurity also provided enhancement opportunities for the program and industry best practices for incentive compensation programs.