Discover 2015 Annual Report Download - page 34

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Risk Reporting
As the constituents primarily responsible for proactively managing the risks to which they are exposed, our
business units and risk and control functions periodically report to the governance committees. The CRM function is
responsible for independent reporting on risk matters to various constituencies across the Company on a periodic basis.
The CRM department periodically provides risk management reporting to the Risk Committee, the Audit Committee, the
Risk Oversight Committee and the Board of Directors.
Stress Testing
We use stress testing to better understand the range of potential risks and their impacts to which the Company is
exposed. A stress testing framework is employed to provide a comprehensive, integrated and forward-looking
assessment of material risks and vulnerabilities. Stress test results inform on business strategy, risk appetite setting, and
decisions related to capital actions, contingency capital plans, liquidity buffer, contingency funding plans and balance
sheet positioning. Our stress testing framework utilizes a risk inventory, which covers our risk exposures across risk
categories such as consumer credit risk, counterparty risk, market risk, liquidity risk, operational risk and strategic risk.
The risk inventory provides a comprehensive view of our vulnerabilities capturing current and emerging risks from
management's view, granular risks relevant to business units and emerging risks associated with new initiatives.
Risk Management Review of Compensation
We believe in a pay for performance philosophy which considers performance across the Company, business
segments and individual performance, as appropriate, and the long-term interests of our shareholders and the safety
and soundness of the Company. We design compensation to be competitive relative to our peers to attract, retain and
motivate our employees. In addition to being competitive in the markets in which we compete for talent and
encouraging employees to achieve objectives set out by our management, our compensation programs are designed to
balance an appropriate mix of compensation components to align the interests of employees with the long-term interests
of shareholders and the safety and soundness of the Company.
The design and administration of our compensation programs provide incentives that seek to appropriately
balance risk and financial results in a manner that does not incentivize employees to take imprudent risks, is compatible
with effective controls and enterprise-wide risk management, and is supported by strong corporate governance,
including oversight by our Board of Directors and the Compensation and Leadership Development Committee of our
Board of Directors.
Risk Appetite and Strategic Limit Structure
Risk appetite is defined as the aggregate level in the type of risks we are willing to accept or avoid in order to
achieve our strategic objectives. Risk appetite expressions are consistent with the Company's aspirations, mission
statement and core values, and also serve as tools to preclude business activities that could have a negative impact on
our reputation.
Our risk appetite statement consists of both quantitative limits and qualitative expressions under baseline and
stress scenarios to recognize a range of possible outcomes and set boundaries for proactive management of risks.
Baseline scenario limits focus on achieving growth and earnings objectives, while the stress scenario limits focus on
maintaining capital and franchise resiliency under stress conditions featuring combined impacts of macroeconomic and
idiosyncratic shocks. These limits and expressions are revised at least annually or as warranted by changes in business
strategy, risk profile and external environment.
Management and our CRM department monitor approved limits and escalation triggers to ensure that the
business is operating within the approved risk appetite. Risk limits are monitored and reported on to various risk sub-
committees, the Risk Committee and our Board of Directors, as appropriate. Through ongoing monitoring of risk
exposures, management seeks to be able to identify appropriate risk response and mitigation strategies in order to
react dynamically to changing conditions.
Capital Planning
Risk exposures identified through the risk identification process across risk categories and risk types are
consolidated to create a comprehensive risk inventory. This inventory is leveraged by a number of processes within the
Company including stress scenario design, capital planning, risk appetite setting and risk modeling. The risk inventory is
reviewed and approved at least annually by the Capital Planning Committee along with the Risk Committee and sub-