Guidelines on sound remuneration policies

Status: Final and translated into the EU official languages

These draft Guidelines set out the governance process for implementing sound remuneration policies across the EU and provide guidance on all other remuneration principles set out in the Capital Requirements Directive (CRD IV). They specify the criteria for mapping all remuneration components into either fixed or variable pay and complement the EBA Opinion on allowances issued in October 2014 by providing additional details in support of the principles formulated in it, so as to ensure compliance with the bonus cap introduced by the CRD IV.

EBA publishes final Guidelines on sound remuneration policies and its Opinion on the application of proportionality

EBA publishes final Guidelines on sound remuneration policies and its Opinion on the application of proportionality

21 December 2015

The European Banking Authority (EBA) published today its final Guidelines on sound remuneration policies together with its Opinion on proportionality, recommending exemptions from the remuneration principles in the Capital Requirements Directive (CRD IV). The guidelines ensure that institutions calculate correctly and consistently the so called ‘bonus cap' by setting out specific criteria for mapping all remuneration components into either fixed or variable pay and detailing how specific remuneration elements such as allowances, sign-on bonuses, retention bonuses and severance pay are to be recognised over time. 
 
In particular, the Guidelines set out the governance process for implementing sound remuneration policies across the EU and clarify the process for identifying those categories of staff to whom the specific remuneration provisions of the CRD apply, including the so called bonus cap. Guidance is also provided on the application of deferral arrangements and the pay-out instruments ensuring that variable remuneration is aligned with the institution's risk profile in the long-term and that ex-post risk adjustments can be applied as appropriate.
 
Considering the huge diversity of national rules regarding the application of proportionality, including the waiving of requirements, which has led to an uneven playing field between institutions across the EU, the EBA, in its Opinion, considers that legislative action should be taken in order to clarify and ensure that the CRD remuneration requirements are applied consistently across the EU. 
 
In this respect, the EBA believes that a proposal for a legislative change should be considered to explicitly support specific exemptions on the application of deferral arrangements and pay out of instruments, where certain criteria are met. In particular, it is the EBA's opinion that the disapplication of these requirements should be possible for small and non-complex institutions and for staff that receives only a small amount of variable remuneration. However, the Opinion clarifies that the application of the so called ‘bonus cap' should not be subject to any exemption.
In the absence of a clear legal basis for the application of waivers, the guidelines remain neutral on this particular aspect and refer to the general principle of proportionality as established in the CRD.
 
A report on the national application of proportionality showing the variety in the implementation of remuneration provisions across the EU is published together with the Opinion.
 
The EBA Guidelines will apply, as of 1 January 2017, to competent authorities across the EU, as well as to institutions on a solo and consolidated basis, including all subsidiaries which are not subject to the CRD IV framework.  
 

Legal basis and next steps

These Guidelines have been developed on the basis of Articles 74 and 75 of Directive 2013/36/EC (CRD); they complement the CRD requirements that are into force since January 2014 and take into account the EBA Opinion on the use of allowances published in October 2014. The Guidelines will come into force on 1 January 2017 to allow sufficient time for institutions to adjust their remuneration policies during 2016. The previous CEBS Guidelines will be repealed on 31 December 2016.
 
The Guidelines are based on the so-called "comply or explain" principle, which means that Competent Authorities will have two months to express their intention to comply with them and in case of non-compliance, they will need to explain their intention not to comply. A compliance table will be published on the EBA website after the expiry of the two-month period according to Article 16(3) of the EBA founding regulation.
 

Press contacts:

Franca Rosa Congiu

E-mail: press@eba.europa.eu - Tel: +44 (0) 207 382 1772

EBA reviews guidelines on remuneration policies

EBA reviews guidelines on remuneration policies

04 March 2015

The European Banking Authority (EBA) launched today a three-month public consultation on its Guidelines on sound remuneration policies. These draft Guidelines set out the governance process for implementing sound remuneration policies across the EU, as well as the specific criteria for mapping all remuneration components into either fixed or variable pay. Guidance is also provided on the application of deferral arrangements and the pay-out instruments ensuring that variable remuneration is aligned with an institution's long-term risks and that any ex-post risk adjustments can be applied as appropriate.
 
These draft Guidelines complement the EBA Opinion on allowances issued in October 2014 by providing additional details in support of the principles formulated in it, so as to ensure compliance with the bonus cap introduced by the Capital Requirements Directive (CRD IV). In particular, the Guidelines clarify the process for identifying those categories of staff whose professional activities have a material impact on the institutions' risk profile, and do so on the basis of the criteria that were defined in the EBA Regulatory Technical Standard (RTS) on identified staff.
 
Specific guidance is provided on how the ratio between the variable and the fixed components of remuneration should be calculated, taking into account specific remuneration elements, such as allowances, sign-on bonus, retention bonus and severance pay. The document also covers pay-out processes and types of instruments used to pay variable remuneration, in line with the provisions defined in the EBA standards on classes of instruments and the combination of different categories of instruments.
 
On the application of proportionality to the remuneration principles, these draft Guidelines follow a legal reading of the CRD IV, supported by the European Commission, that the requirements on deferral and payment in instruments have to be applied to all institutions. On this point, the EBA is of the view that specific exemptions could be introduced for certain institutions that do not rely extensively on variable remuneration and, if confirmed by further analysis, also for identified staff that receive only a low amount of variable remuneration.  To this regard, the Authority intends to send its advice to the European Commission suggesting legislative amendments that would allow for a broader application of the proportionality principle and is, therefore, asking all interested parties to provide input on this aspect.
 
The EBA Guidelines will apply to competent authorities across the EU, as well as to institutions on a solo and consolidated basis, including all subsidiaries which are not subject to the CRD IV framework. Once the new Guidelines will be enforced, the previous Guidelines on remuneration policies and practices from 2010 will be repealed.

Consultation process

Comments to this consultation can be sent to the EBA by clicking on the "send your comments" button on the consultation page. Please note that the deadline for the submission of comments is 4 June 2015.
 
A public hearing will take place at the EBA premises on 8 May 2015 from 13:30 to 16:00 UK time. All contributions received will be published following the end of the consultation, unless requested otherwise.

Legal basis and next steps

These draft Guidelines have been developed on the basis of Articles 74 and 75 of Directive 2013/36/EC (CRD IV). Competent Authorities across the EU will be expected to implement the Guidelines by the end of 2015, so as to ensure that all institutions apply them for the performance year 2016 and onwards. The Guidelines are based on the so-called "comply or explain" principle, which means that Competent Authorities will have two months to express their intention to comply with them and in case of non-compliance, they will need to explain their intention not to comply. A compliance table will be published on the EBA website after the expiry of the two-month period according to Article 16(3) of the EBA founding regulation.
 

Press contacts:

Franca Rosa Congiu

E-mail: press@eba.europa.eu - Tel: +44 (0) 207 382 1772