associated unauthorized products trended downwards .
As some incentive systems can be harmless , many employers , including financial institutions , have likely adopted them in some form to increase employee productivity . They are not illegal to implement . However , programs like U . S . Bank ’ s implicate several consumer financial regulations , causing harm to the financial institution implementing those incentive systems and putting consumers at high risk of abuse .
Incentive-based systems that directly affect employees ’ earnings and performance evaluations are dangerous to launch . Programs which do not hinge the income or performance evaluation on sales or number of services and sales are far less dangerous . As stated in the consent order , employees who work with a similar system may feel pressured or even obligated to make dishonest decisions to ensure their wages increase or their performance evaluation goes well . In professions with less consumer protection regulations and access to sensitive financial information , fallout from unauthorized and dishonest practices may not be as devastating to the business , institution or consumers . Financial institutions have a unique obligation to their consumers and multiple government regulations , in which violations could cost them millions of dollars , and can harm consumers ’ financial interests .
Despite there being no specific regulation regarding incentive programs on their own , there has been guidance . In 2010 , the Office of the Comptroller of the Currency ( OCC ) released a bulletin regarding incentive programs in financial institutions , and how they can implement programs while still remaining compliant . Financial institutions seeking such programs should follow these three specific principles : to make compensation more sensitive to risk :
1 . Adjust the risk of rewards based on measures of the riskiness of the behavior necessary for the rewards .
2 . Defer the payout of the reward to the employee and adjust the amount in response to actual losses or performance changes .
3 . Use a longer time period to generate more data to determine how effective employees are being .
4 . Reduce the rate of rewards as the employee reaches higher levels of relevant performance measures .
Financial institutions who would like to implement a reward-incentive system should first ensure their general practices and training are regulation compliant so violations are not a general occurrence . Next , they should take time to discuss with management and directors the direction and oversight of such programs , and how best to assess them over time . Finally , these programs should be periodically reviewed for any issues like dishonesty or abuse of general financial practices , and be proportional to the financial institution ’ s size and reach . Any found deficiencies in either general systems or the specific incentive program should be reported immediately .
Employees should be trained and encouraged to report to management any thoughts or feelings on the fairness and transparency of the program , to minimize risk of employees violating regulations for a larger paycheck . Lastly , compliance programs should be updated and routinely assessed . With preventative measures in place , incentive-based reward programs can be effective , compliant and potentially rewarding for employees .
1 . Provide employees incentives that appropriately balance risk and reward .
2 . Be compatible with effective controls and risk management .
3 . Be supported by strong corporate governance , including active and effective oversight by the organization ’ s Board of Directors .
The Federal Deposit Insurance Corporation ( FDIC ) has also seconded the OCC ’ s guidance and has released their own document for financial institutions looking for more specifics . The FDIC ’ s guidance includes four ways
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