EBA publishes Guidelines on the applicable notional discount rate for variable remuneration
27 March 2014
The European Banking Authority (EBA) published today its final Guidelines for the calculation of the discount rate for variable remuneration and clarifying how it should be applied. These Guidelines will support EU Member States in the calculation of the ratio between the variable and fixed component of total remuneration and refer to services or performances provided from 2014 onwards.
The variable component of remuneration for categories of staff whose professional activities have a material impact on the risk profile of the institution is capped at 100% of the fixed remuneration or at a maximum of 200%, subject to shareholders' approval. EU legislation foresees that when calculating the ratio between variable and fixed component, Member States may allow institutions to apply a discount rate of 25% (or less subject to national laws) of the variable remuneration, provided the latter is paid in instruments that are deferred over a period of not less than 5 years.
The discount rate consists of the national annual inflation rate and the average interest rate of EU government bonds, as well as and an incentive factor linked to the use of long-deferred instruments which increases with the length of the actual deferral period. The discount rate is calculated taking into account the length of the period between the award and the vesting of variable remuneration.
The notional discount rate, if the Member State has implemented this national discretion, can be applied to the variable remuneration for the performance year 2014 and onwards. For this purpose, institutions will be able to use the same discount rate in all relevant institutions at a group level.
The Guidelines have been developed on the basis of Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 (CRD) on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms.
The EBA has consulted on the draft Guidelines for a period of three month. The consultation period ended on 18 January 2014.