EBA reports on high earners and the effects of the bonus cap
30 March 2016
The European Banking Authority (EBA) report on remuneration practices published today shows that the number of high earners in EU banks increased significantly in 2014, while the average ratio between the variable and fixed remuneration dropped significantly for high earners, as well as for all other identified staff. The report, which is part of the regular activities of the Authority, focuses on the identification of staff, the application of deferral arrangements, the pay-out in instruments and the impact of the bonus cap on institutions financial stability and cost flexibility, which was found to have no significant effect. The report differentiates between data on the remuneration of "high-earners" and benchmarking data for "identified staff".
The number of high-earners in the EU increased significantly, from 3 178 in 2013 to 3 865 in 2014, corresponding to a 21.6% increase on the previous year. The percentage of those high-earners who are identified staff, i.e. those who have a potential impact on institutions' risk profiles, also increased significantly from 59% in 2013 to 87% in 2014; and the absolute number of identified staff went up from 34 060 in 2013 to 62 787 in 2014.
This increase in numbers is mainly the result of the EBA's Regulatory Technical Standard (RTS) on identified staff, which entered into force in 2014. These RTS brought a more accurate definition based on qualitative and quantitative criteria, so as to allow for a better identification of those staff that have a material impact on the risk profile of institutions.
The introduction of the so-called ‘bonus cap' – the limitation of the ratio between the variable and the fixed components of remuneration to 100% (200% with shareholders' approval) which is applicable since 2014 – had an impact on remuneration practices; EU banking institutions shifted the remuneration for their identified staff towards the fixed component, bringing the ratio in line with what is prescribed by EU legislation. As a result, the average ratio between the variable and fixed salary paid to identified staff was 65.48% in 2014, down from 104.27% in 2013. At the same time, the average ratio between the variable and fixed remuneration paid to high earners dropped from 317% in 2013 to 127% in 2014.
The introduction of the bonus cap was found to have no significant effect on institutions' financial stability and cost flexibility. For most institutions, the fixed salary of identified staff accounted for less than 1% of their own funds; and on average accounted for only 3.12% of the institutions' administrative costs. This small increase in the fixed remuneration for identified staff is not material compared to the administrative costs of institutions.
The EBA report also highlighted that institutions' remuneration practices were still not sufficiently harmonised across the EU. In particular, the application of deferral and pay-out in instruments varied significantly across Member States and institutions. This is due to differences in national implementation, which, in many cases, allow for waivers of these provisions when certain criteria are met. These differences have already been highlighted in the EBA's Opinion on the application of proportionality in the area of remuneration.
This report has been submitted to the European Commission as part of information provided to inform the review of remuneration provisions mandated in Article 161(2) CRD. The EBA will continue to regularly benchmark remuneration trends, and to monitor and evaluate new developments in the sector.
This report has been developed in line with paragraphs (1) and (3) of Article 75 of Directive 2013/36/EC (CRD IV), which mandates the EBA to use the data disclosed by institutions to benchmark remuneration trends and practices and to collect information on the number of individuals per institution that are remunerated EUR one million or more per financial year (high earners) in pay brackets EUR one million, including the business area involved and the main elements of salary, bonus, long-term award and pension contribution.
Franca Rosa Congiu
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