Prudential requirements for institutions' remuneration systems

Remuneration policies that focus on short-term parameters and reward success one-sidedly without sufficiently sanctioning failure may tempt staff to lose sight of the company’s long-term and sustainable success. Such remuneration policies stand in the way of adequate risk management. The financial market crisis has demonstrated that the misincentives established by mistaken remuneration policies may create risks not just to the stability of individual enterprises, but also to financial stability in general.

The Regulation Governing Remuneration at Institutions (Instituts-Vergütungsverordnung) is intended to orient remuneration more strongly towards companies’ long-term success again. Moreover, inappropriately high bonus payments are to be prevented by giving Germany’s Federal Financial Supervisory Authority (BaFin) greater powers to intervene (it will be able to limit or prohibit the payment of variable elements of remuneration)