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Incentive Compensation Management

Four Key Principles for Compliance-Driven ICM in the Banking Industry

This is the second in a two-part series that examines ICM in the banking industry and a best practice approach to drive better alignment, efficiency and compliance.

Do you struggle with managing the compliance standards set by government regulators of the banking industry?

This is a common challenge for our clients that too often leads to increased risk and exposure as well as unanticipated costs.

Government regulation to reduce risk

Following the 2008 financial meltdown, the banking industry has been under pressure to adopt risk-appropriate compensation practices that will not jeopardize a company’s financial standing.

The US Federal Reserve has issued Guidelines on Incentive Compensationcalling on financial institutions to adopt incentive compensation programs that are risk-appropriate and supported by strong corporate governance.

Similarly, the Dodd-Frank legislation – the Wall Street Reform & Consumer Protection Act – also requires incentive compensation practices that are not excessive and do not promote behaviour that will put their organizations at risk.

Using ICM for enhanced compliance

Intangent’s experience with ICM in the banking industry includes working with US national and regional banks to improve their ICM systems; and these companies acknowledge the primary importance of meeting higher compliance standards.

As they expand their ICM solution to business areas throughout their organizations, they must ensure that their incentive plans align with their business goals.

Challenges with compliance driven ICM in the banking industry

However, financial institutions often rely on legacy systems that do not allow them to easily meet these assigned standards.

For example, many companies in the banking industry continue using manual, Excel-based spreadsheets that are:

  • Outdated and inflexible
  • Error prone and unreliable
  • Confusing and disorganized
  • Lacking visibility, embedded auditing, logging or reporting capabilities

Moreover, some companies rely on homegrown systems, which lack the ability to track long-term performance of banking products versus compensation practices and translate those findings into long-term profitability trends.

In today’s rapidly changing environment, companies seeking to manage ICM in the banking industry need a specialized solution to meet those important requirements.

Best practice solutions for ICM in the banking industry

An effective ICM solution in the banking industry should include:

  • Deep audit-logging history that tracks manually adjusted payments, compensation plan changes and payment approvals
  • Historical, current and forecasted compensation plans, measurements and performance
  • Historical, current and forecasted transactional data.

Repoprting capabilities should support all of business units, including its retail, wealth management, commercial, trading, regulatory compliance and executive oversight functions.

As the banking industry grows and its market, products and regulatory requirements become even more complex, companies are seeking better flexibility, performance and accessibility from their ICM solutions.

Contact Intangent to learn more about how our ICM services and supports can help you meet compliance standards.

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