The institution criticizes that the criteria for awarding executives’ million-dollar variable pay “are not always clear”
The European Central Bank (ECB) has criticized the criteria used by financial institutions to determine the bonuses their managers receive, understanding that “they are not always clear and transparent”. The monetary body regrets that it often relies too much on financial performance compared to other important aspects such as risk, control and cultural and behavioral aspects of bankers.
The reprimand comes after a year in which banks increased their profits thanks to interest rate hikes. In the case of Spanish entities, the major groups earned 20,800 million in 2022, 28% more than the previous year, mainly supported by their interest and commission margin.
Some entities have already accounted for the remuneration of their executives. In the case of BBVA, its chairman, Carlos Torres, obtained a total remuneration of 8.29 million in 2022, 5.8% more than in 2021. Of this amount, the fixed part is 2.9 million and the variable part is 4.6 million , higher than the previous year. The CEO, Onur Genç, for his part earned 7.1 million, almost 5% more. The other Spanish banks will publish their remuneration reports in the coming weeks.
The ECB points out that, “surprisingly”, the lack of transparency in bonuses extends to bank employees in internal control functions and even to risk managers themselves, adding that regulators have also found shortcomings in the alignment of said bonuses. risk appetite, in the processes and controls surrounding variable remuneration and in the application of malus and remedial clauses in the event of excessive risk taking or misconduct.
“Overall, there is room for improvement in this area, which requires supervisory attention,” concludes the ECB, which will continue to assess banks’ progress in improving risk culture through peer-to-peer benchmarking, the exchange of good practice and continuous dialogue with industry, with appropriate supervisory escalation when significant weaknesses are identified.
The institution points out that, as part of its supervisory priorities for 2023-25, a specific analysis will assess “tone from the top” as it plays a vital role in holding people accountable for prudent risk-taking and for what The Management body must collectively have the relevant skills and experience, be in good standing, consider different points of view in discussions and be able to constructively challenge senior management.
The banking supervisor defends the importance of a solid risk culture, which he defines as the set of rules, attitudes and behaviors related to the awareness, management and control of risks in a bank and which shapes the day-to-day decisions of management and employees with an impact on the risks incurred. “Weaknesses in risk culture may indicate future problems, such as financial loss or misconduct,” the ECB warns, pointing out that a bank’s strong financial position, on the other hand, can be misleading if there is an underlying problem with culture and behavior.
On the other hand, it exposes the importance of accountability and risk appropriation for good governance and an adequate risk culture, pointing out that some banks do not clearly assign the functions and responsibilities of tasks related to risk and control, while others have risk management and control. compliance functions that do not sufficiently challenge or are sometimes drowned out by business lines.
Source: La Verdad
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
