In an attempt to protect consumers and reduce 'conduct costs' for firms, the EBA has put together guidelines on remuneration for staff employed by organisations offering credit to consumers.
Pay policies are important in attracting, motivating and retaining skilled employees, the EBA said, but they can also drive misconduct and mis-selling if they are not well designed.
"The impact of mis-selling has been considerable, in that it has caused detriment to consumers as a result of inappropriate, unsuitable or excessively priced products; has resulted in unfair pressure exerted on sales staff; has impacted negatively on financial institutions as a result of fines, penalties, settlements, redress, compensation payouts, and litigation; has undermined confidence in financial institutions and markets, and has created economic costs to society through the misallocation of resources," the EBA said.
The draft guidelines therefore give a framework for financial institutions to put together pay policies and practices that improve the link between incentives and fair treatment of consumers and should reduce the risk of mis-selling, the EBA said.
The guidelines cover what should be expected of the management of a firm when designing and monitoring remuneration policies and practices, including taking consumer rights into account, preventing conflicts of interest and using both quantitative and qualitative criteria for calculating variable pay.
Remuneration policies should also be documented and retained for five years, made available to competent authorities if they are asked for, and should be easily accessible by staff.
Under the guidelines the management of a firm would retain ultimate responsibility for remuneration practices, and should seek advice on following the guidelines, the EBA said.
The consultation is open until 22 March.