Brussels, 16/06/2014 (Agence Europe) - In a report published on Friday 13 June, the European Banking Authority (EBA) examines a recent trend for banks to pay high earners allowances based on their speciality to boost their fixed pay.
“The report shows that financial institutions have been reviewing their remuneration policies to comply with the new requirements introduced by the Capital Requirements Directive (CRD IV) and some firms have introduced 'position or role-based allowances,' which are paid as fixed amounts in addition to the base salary and are considered by institutions as fixed remuneration. However, they are discretionary as they are paid to selected members of staff and in most cases only for a limited period of time. Under exceptional circumstances they can also be cancelled”, says the Authority.
The 28 member state national regulatory bodies have announced that they are looking into criteria to determine what category of remuneration role-based allowances fall into. “The EBA is currently examining this emerging practice and will set guidance criteria to correct assign these elements to either variable or fixed remuneration so as to ensure that these practices do not lead to a circumvention of the newly introduced cap between the variable and fixed components of remuneration”, it asnnounced.
For the first time in the EU, a cap was introduced this year on variable pay and bonuses for high bank or investment company earners (see EUROPE 10812) so that bonuses can no longer exceed fixed pay (a 1: 1 ratio) unless the majority of shareholders endorses bonuses of double fixed pay (2: 1 ratio). The rules apply to banks in the EU28, their subsidiaries outside the EU and non-EU banks registered in the EU. The EBA says that many banks will currently not meet the cap that will apply in the future.
The EBA has used figures from 137 big banks for 2012 and 124 big banks in 2011 and notes “major differences” in remuneration practices for big earners in the EU. There are sharp differences in bonus practice and deferment of part or all of bonuses, claw-back clauses and the percentage of risk-takers.
The EU has issued implementation rules for the bonus cap (see EUROPE 11031). The raft of criteria include a €500,000 annual cap on total remuneration for bank risk-takers (those whose job could impact on the stability of the bank). (MB)