Response to consultation on draft guidelines on the applicable notional discount rate for variable remuneration

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Is the example 2 sufficiently clear and helpful to understand the application of the guidelines?

EBF considers this example as confusing and believes that it needs to be made simpler and clearer. In fact, the present value formula is not general, but applies when the ratio is 100% (and not, for instance, 200%). Furthermore, longer deferral periods are not favoured in the pro-rata model where discounted variable remuneration does not necessarily decrease with the deferral length (is rather a U-curve).

Is the example 3 sufficiently clear and helpful to understand the application of the guidelines?

Yes. In addition, we would also suggest including examples which assume the maximum ratio between variable and fixed remuneration at 200%.

Do you agree with our analysis of the impact of the proposals in this CP? If not, can you provide any evidence or data that would explain why you disagree or might further inform our analysis of the likely impacts of the proposals?

Whilst we generally agree with the impact analysis of the proposals, there is the feeling that the draft Guidelines do not provide the best means of incentivising long-term deferral structures due to a lack of practicality, and complexity. The discount heavily depends on external factors and the resulting volatility makes it difficult to explain, and not reliable enough to be used in real life compensation strategies. As an alternative, the regulator could decide on a fixed discount table of 10%, 15%, 20% and 25% if certain criteria for deferral and retention periods and / or structures are met.

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Name of organisation

European Banking Federation (EBF)