The FCA has published Guidance Consultation 15/1: Risks to customers from performance management at firms – Thematic review and guidance for firms (GC15/1).

For the purposes of GC15/1, ‘performance management’ includes formal processes such as appraisals and underperformance procedures, sales targets and other less formal day-to-day interactions and communications between sales staff and managers about sales results that influence behaviour.

The FCA has been made aware of intelligence from whistleblowers and media articles, that in some cases, the changes to reward structures may not have been accompanied by a genuine shift away from a sales-focused culture. Instead, there are indications that in some cases the progress made on financial incentives may have led to an increase in pressure being placed on staff through other means, to achieve sales.

Whilst the FCA has not identified evidence of widespread issues it has found instances of poor practice through its follow-up intelligence from whistleblowers at some firms.

In GC15/1 the FCA sets out the findings from its recent work, highlighting areas of good and poor practice. The FCA is also consulting on draft guidance to help firms to comply with existing rules and principles in managing the risk of mis-selling from poor performance management practices.

The draft guidance is intended to help firms:

  • satisfy themselves that the risk of mis-selling from performance management can be, and is being managed; and
  • monitor performance management in practice and look for indicators of undue pressure to identify poor practices, including encouraging staff to provide feedback and taking appropriate action.

The FCA makes a number of points in GC15/1 including that:

  • it has seen an increasing level of intelligence about poor performance management practices during 2014. This has included a growing number of whistleblowing reports to the FCA from staff at firms in different sectors;
  • despite the benefits of good performance management, there will always be an inherent risk that poorly executed performance management can encourage or drive mis-selling because of pressure to meet individual targets, and/or corporate plan objectives;
  • firms need to manage this risk and should pay particular attention to identifying poor practices that may create an undue level of pressure on staff, which is likely to further increase the risk of mis-selling;
  • the way sales targets are calculated, and the levels that are set for individuals or teams, is also an important factor in how much pressure staff can be placed under to deliver sales results; and
  • where balanced scorecards are used for performance management and financial incentives, this can help to reduce risk.

The FCA expects all firms who deal with retail customers to read GC15/1, and where appropriate, take action to ensure that they are managing the risk.

The deadline for comments on GC15/1 is 15 May 2015.

View GC15/1: Risks to customers from performance management at firms – Thematic review and guidance for firms, 16 March 2015