What's on my mind

Incentives and performance management: what is “best practice” and how can it be evidenced?

1st August 2016

The FSA’s Final Guidance (FG13/01) was published in January 2013. The FCA more recently (in March 2014) published an updated Paper, Thematic Review 14/4 entitled: “Risks to customers from financial incentives – an update”.

The temptation for intermediaries, in particular smaller intermediaries, is to think that the guidance does not apply to them but only to the largest firms but this is not the case. All intermediaries should look at the examples of good and poor practice contained in the recent updated Review Paper and consider their own existing arrangements. Many firms’ schemes do not contain qualitative measures or have ones that do not in reality have “teeth” and on occasion, historical cultural issues may also need to be addressed.

During 2015, the FCA published a further Paper, FG15/10: Risks to customers from performance management at firms – Thematic Review and guidance for firms. It highlights issues around culture and pressures that can arise in an attempt to achieve results where there have changes to incentives arising out of FG13/01 and TR14/4.

There are potential financial benefits from carrying out a review aside from ensuring good practice that meets the FCA’s expectations, the exercise also should highlight if the level of payments made are aligned with outcomes that genuinely contribute to good customer outcomes and where staff are managed appropriately.


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