EU: Banking Authority to revise sound renumeration guidelines

EU: Banking Authority to revise sound renumeration guidelines

The European Banking Authority (EBA) invites input by 29 Jan 2021 on proposed revisions to the Guidelines on Sound Remuneration Principles. Revisions are needed in order for the guidelines to comply with the European Union’s (EU) capital requirements directive (CRDV) that will take effect on 28 Dec 2020. The EBA’s proposed revisions address restrictions on variable pay, the application of gender neutral remuneration policies, and risk management measures. The EBA says the proposed revisions are more limited in scope than those made in 2015, and the new guidelines will be finalized during the first half of 2021.

Highlights

  • Governance arrangements and processes that promote sound and effective risk management must be included in institutions’ remuneration policies.
  • The guidelines differentiate between remuneration requirements applicable to all staff and to “identified staff” who have a material impact on the institution’s risk profile.
  • Remuneration policies and practices must avoid incentivizing excessive risk taking, be aligned with the long-term strategy of the institution, and be transparent with regard to fixed and variable pay and the award criteria used.
  • The guidelines restrict the use of any variable remuneration, such as severance payments, retention bonuses, allowances, guaranteed variable remuneration and discretionary pension benefits. In particular, the guidance on retention bonuses is significantly expanded.
  • Institutions should ensure clawback provisions in cases where the deferral of variable remuneration is waived and malus cannot be used.
  • Gender neutral remuneration policies and practices must be applicable to all staff. The equal pay principle covers all pay (whether cash or in kind) and requires equal pay for the same work, or for work of equal value. The EBA will publish a report on the application of gender-neutral remuneration policies by institutions within two years of the guidelines’ publication.
  • Clarification of the institutions that should establish a remuneration committee.
  • The guidelines address the directive’s flexibility for national laws to allow (i) the waiver of payouts in instruments and (ii) the deferral of variable remuneration for smaller institutions and staff who are paid smaller amounts of variable remuneration.
  • Clarification of how the remuneration framework applies, on a consolidated basis, to investment and other financial institutions subject to a specific remuneration framework. 

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Richard Symons
by Richard Symons

Executive Compensation Consultant, Mercer

Fiona Webster
by Fiona Webster

Principal, Mercer’s Law & Policy Group

Stephanie Rosseau
by Stephanie Rosseau

Principal, Mercer’s Law & Policy Group

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