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The current crisis in financial markets has brought about a great awareness on the role of remuneration and incentive structures in risk management. However, the debate has focused on traders and executives. The European Commission plans to publish a recommendation on remuneration in the financial services sector on 21 April.



“For UNI Finance, it is important that the initiative does also deal with remuneration and incentive systems for employees at lower levels. They too play a major systemic role in risk management and are a potentially destabilising factor in financial markets,” said Oliver Roethig, Head of UNI Finance. “Therefore, the Commission’s recommendations should explicitly cover employees in sales and advice functions in financial institutions at all levels.”



The use of sales targets and remuneration structures exclusively rewarding sales of products increase the risk of products being sold to customers which they do not need or want or even cannot afford. The 2007 sub-prime crisis on the US housing market is clear evidence of the systemic impact of inappropriate incentive structures. Incentive structures must encourage prudent advice and good customer service – as an aim in itself, but also in order to mitigate the risk of the recurrence of a similarly devastating crisis.



Appropriate remuneration systems are key to ensure the development of a new long-term oriented, risk-conscious business model. Therefore:



1. Recommendations on remuneration in the financial services sector should explicitly cover employees in sales and advice functions in financial institutions at all levels.



2. Incentive structures for employees in sales and advice functions should encourage good customer services and qualified advice and not only sale of products. Remuneration structures should not be linked to individual sales targets.



3. Prudent supervision should oversee that remuneration structures at all levels – including sales and advice functions – are appropriate and risk conscious. Authorities should be able to penalise inappropriate practice.



4. There should be structured dialogue between unions in the finance sector and supervision authorities at all levels to address these matters and other internal practices affecting companies’ risk management and the stability of the financial system.



5. Charters on responsible sale of financial products should be developed by each financial institution and to be agreed between management, unions and other stakeholders



“While consumers have the right to good advice; finance workers have the right to give good advice,” said Roethig, “and this depends foremost on appropriate remuneration and incentive systems.”



For the text of the submission, see "Related Files".

Further contributions to the EU were given on:

• financial markets supervison
• directors' remuneration
• retail investment products
• financial inclusion

UNI Finance's statement and key issues paper on finanical reform can be found here:

"http://www.uniglobalunion.org/Apps/iportal.nsf/pages/20090324_flp3En"