Using Data to Monitor Employee Conduct in the Wake of Bonus Cap Increases
As Bonus Caps Increase, So Could Risk
Barclays recently became the first major British bank to significantly raise the bonus caps for its senior bankers. According to an internal memo that was reported by Reuters, senior staff can now earn bonuses up to 10 times their base salary, a dramatic increase from the previous two-to-one ratio that was imposed by the European Union in 2014. While this move is meant to attract and retain top talent, it also comes with heightened risks, making it more important than ever to track employee conduct effectively. In addition, in this highly competitive arena, this will likely become a template for other rival British financial institutions.
Why Were Bonus Caps Imposed?
The European Union originally implemented these bonus caps in response to the excessive risk-taking that contributed to the 2008 financial crisis. By limiting how much banks could reward their top executives, regulators aimed to create more accountability and discourage behaviour that could lead to another financial meltdown. However, with the UK no longer bound by these EU regulations post-Brexit, banks now have more freedom to increase compensation packages.
While these changes are good news for executives, they also raise questions about how institutions can ensure that the lure of substantial bonuses doesn’t lead to irresponsible risk-taking. This is where the role of data in monitoring employee behaviour becomes crucial.
Leveraging Data to Monitor Employee Conduct
The challenge for financial institutions is finding a way to offer competitive rewards without encouraging undue risk-taking. The solution lies in leveraging data-driven tools to monitor employee conduct in real-time. Here’s how data analytics can assist:
- Enables oversight of regional regime regulations such as the Senior Management and Certification Regime (SMCR) to track that the right people are held accountable.
- Provide continuous oversight of employee activities, including trading behaviour and communications.
- Track and assess potential conflicts of interest to mitigate risks early.
- Help employee compliance teams proactively identify and address issues before they escalate.
- Ensure that increased financial incentives do not lead to unethical or risky behaviour.
Balancing Risk and Reward
In this new environment, banks need to align financial incentives with responsible risk management. Data insights play a critical role in helping leadership make informed decisions about compensation. By integrating risk awareness into bonus structures, banks can ensure they are rewarding performance without encouraging reckless behaviour.
The additional use of advanced analytics to monitor patterns can foster a compliance-focused culture, where employees understand that while they are rewarded for high performance, their actions are being monitored to ensure they are in line with the institution’s values, risk thresholds, as well as stay within regulatory laws.
The Role of Compliance Software
As British banks lift bonus caps, the potential for increased risk-taking grows. However, by leveraging data analytics, financial institutions can ensure that employee conduct is monitored closely, creating a balance between competitive compensation and responsible behaviour. In this evolving landscape, the ability to track and mitigate conduct risks will be crucial to maintaining both financial stability and long-term success.
With its best-in-class SaaS-based software solutions, StarCompliance (Star) helps financial institutions monitor and manage employee conduct effectively. By providing tools for tracking trading, personal account dealings, conflicts of interest, and other critical activities, Star works with firms to ensure that they are equipped to manage the complexities of increased financial incentives while minimizing risk. Star’s Individual Accountability Regime software, to manage regimes such as SMCR and Individual Accountability Framework (IAF), automates the process of making sure senior management stays compliant by identifying certification needs, guaranteeing risk-information accuracy, and ensuring ongoing adherence to this expansive set of regime requirements.
In addition to Star’s award-winning platform, the company deploys an ecosystem of partners that include data access and storage which integrates data insights into employee compliance programs. This enables institutions to maintain a culture of compliance, making it easier to align performance rewards with risk management and safeguard long-term success.
Harnessing the Power of Big Data
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