Single Rulebook Q&A

Question ID: 2017_3589
Legal act : Directive 2013/36/EU (CRD) as amended
Topic : Remuneration
Article: 94
Paragraph: 1
Article/Paragraph : 128
COM Delegated or Implementing Acts/RTS/ITS/GLs: EBA/GL/2015/22 - Guidelines on sound remuneration policies under Articles 74(3) and 75(2) of CRD and disclosures under Article 450 of CRR
Name of institution / submitter: De Nederlandsche Bank (DNB)
Country of incorporation / residence: Netherlands
Type of submitter: Competent authority
Subject matter : Retention bonus

Can an institution award retention bonuses to the management board in case of an intended IPO?

Background on the question:
An institution which is currently not listed but wants to become listed considers that the retention bonus is necessary to retain the persons involved for the institution and that the IPO can be seen as a 'change of control' and refers hereby to paragraph 128 of the Guidelines EBA/GL/2015/22. In case of a restructuring, wind down, merger or a take-over it is obvious that retention bonuses can be awarded to retain staff. However, in case of an IPO, this is not clear.
The question at play is whether an IPO has impact on the job security.
Date of submission: 08/11/2017
Published as Final Q&A: 25/05/2018
EBA answer:
Paragraph 128 of the EBA Guidelines on Remuneration (EBA/GL/2015/22) sets out that “Institutions should be able to substantiate their legitimate interest in awarding retention bonuses to retain an identified staff member. For example, retention bonuses may be used under restructurings, in wind-down or after a change of control”.
A retention bonus should be awarded only once the set retention period has been completed and staff has been retained during this period. The retention bonus should lead to the retention of staff who may otherwise choose to leave the institution. A retention bonus is not a measure to compensate staff in a situation which would increase the likelihood that staff (e.g. members of the management body after a change of control happened) would be replaced by the institution or its shareholders.
The examples provided in paragraph 128 do not establish an exhaustive list of situations that could in principle be used to substantiate the need to award a retention bonus.
An IPO could potentially lead e.g. to a ‘change of control’ or a change of the scope of consolidation. In order to evaluate the justification for the specific retention bonus, institutions and competent authorities need always to apply judgement and may take into account at least the following:
  1. What are the concerns that lead to the risk that certain staff may choose to leave the institution?
  2. What are the reasons why the retention of those staff is crucial for the institution?
  3. Is it likely that the awarded retention bonus will lead to the retention of the targeted staff?
  4. Is the retention bonus a mere measure to compensate for performance related remuneration (see also paragraph 130 of the Guidelines)?
  5. Is it possible that the institution is trying to circumvent the remuneration requirements of CRD IV, e.g. the bonus cap – notwithstanding that paragraph 129 of EBA/GL/2015/22 requires that a retention bonus must comply with the requirements on variable remuneration?
Status: Final Q&A
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