The scope of the guidelines is clear meanwhile we would mention that the scope of inquiry in Annex 1 for “all staff” goes far beyond the CRD/CRR disclosure requirements.
Indeed, the purpose of these guidelines is to provide further details about the information to be submitted to the EBA regarding the benchmarking of remuneration trends and practices by competent authorities under Article 75(1) of Directive 2013/36/EU.
From a strictly legal point of view, we would like to raise the question of the legitimacy of such requests. Indeed, Article 75(1) of Directive 2013/36/EU states that competent authorities shall collect:
- the information disclosed in accordance with the criteria for disclosure established in points (g), (h) and (i) of Article 450(1) of Regulation (EU) No 575/2013 and shall use it to benchmark remuneration trends and practices, and
- information on the number of employees per institution that are remunerated EUR 1 million or more per financial year, in pay brackets of EUR 1 million, including their job responsibilities, the business area involved and the main elements of salary, bonus, long-term award and pension contribution.
However, EBA has never addressed the objectives and benefits of collecting remuneration data for “all staff” which goes far beyond these disclosure requirements. Providing additional data on other employees’ compensation would neither address the Directive requirements, nor provide useful information to stakeholders which would allow them to better assess whether sound compensation principles have been put in place. The completion of Annex 1 creates additional costs for institutions, especially for large international banking groups, to the extent that the granularity of data requested is not readily available in the existing information systems on a group wide basis. The increased level of granularity will increase compliance costs, with no obvious benefits
The scope of institutions to be included in the exercise and the process regarding this matter is very clear.
We need some clarifications about the scope of application of these guidelines. Indeed, due to the application on an individual basis of EBA criteria for the identification of Material Risk takers, some large subsidiaries within a Group will have to apply CRD IV provisions at their level and define their own regulated perimeter. In this framework, if these guidelines have to be applied on a consolidated basis at the highest level of the organization, we would like to know who will disclose remuneration data on the subsidiaries regulated perimeter. Will it be the Group with their own Group perimeter or each subsidiary based in a country of the EU for their own subsidiary perimeter?
As the data requested in Annex 3 concerns individuals remunerated EUR 1 million or more per financial year in accordance with Article 450(1)(i) of Regulation (EU) No 575/2013, it therefore refers to individuals whose professional activities may have a material impact on the profile of risk of the bank and not to all staff. It should be made clearer that Annex 3 of these guidelines on benchmarking exercise only refers to Material Risk Takers remunerated EUR 1 million or more, as opposed to the data collection exercise regarding high earners, which covers all staff.
EBA requests credit institutions to provide detailed information on remuneration awarded to employees on a worldwide basis, excluding the mandatory contributions to social security and comparable national schemes. As already mentioned to EBA in September 2012, this request still poses numerous technical and practical concerns, especially for large international banking groups based in several countries, and in particular with the new guidelines and the request to provide a more granular data by activities:
- From a benchmarking perspective, there will be major discrepancies due to national social security systems rather than to remuneration levels: institutions which are established mainly in countries where the national social security systems are not much developed will tend in general to compensate the state system by voluntary contributions to company schemes which will automatically increase the total compensation amounts disclosed in the annex I. On the contrary, the other institutions mainly set up in countries in which the mandatory contributions to social security systems are high will exclude from the total remuneration highest amounts of mandatory contributions and will disclose lowest amounts of total compensation.
- The breakdown among social charges between mandatory and company-wide schemes would require each legal entity in every country payroll department to complete these data, since the employer contributions tracked in the accounting systems do not distinguish between social security regimes and company schemes. In a group context, this may require requesting data from hundreds of entities. This appears to be disproportionate costs and efforts.
- As mentioned in paragraph 11 of CEBS guidelines of December 2010, ancillary payments or
benefits that are part of a general, non-discretionary, institution-wide policy (i.e. company-wide pension or health care schemes) pose no incentive effects in terms of risk taking. They will generally be implemented in order to compensate insufficient coverage under national social security regimes. As such, it is not obvious why such data is required under the remuneration benchmarking exercise.
Consequently, for simplification purposes, we suggest that the reporting requirements should exclude employer contributions to non-discretionary institution wide retirement and benefits schemes as such data is not readily available in a group context.
Moreover, we would like to point out another major concern regarding the level of granularity/breakdown requested in the annex 1 and 2 of these guidelines. Indeed, the breakdown between members of the supervisory functions and management functions with the inclusion of non-executive and executive directors of any board in the scope of consolidation add another level of complexity in particular for the annex 1 in so far as, as from now, it is not an information followed up neither in our HR/accounting systems at group level nor in HR/accounting systems at local level. Within large international banking groups, the number of separate legal entities, and so the number of boards within the scope of consolidation may amount to several hundred. The process of distinguishing precise remuneration data for each board member within the group will be operationally very time consuming and burdensome. This breakdown will also result in meaningless data which cannot be used for benchmarking purposes. For example, for some groups the remuneration data for the management function of the whole group will be mixed with data for the management function of some very small entities, also sometimes in very low income countries (i.e. Africa) and so the total data for such functions will be diluted and meaningless.
In addition, in a consolidated group context, the head office will not have readily available information for “all staff” in all of its subsidiaries broken down to such a level of granularity (i.e. control functions, corporate functions, etc.), so the suggested breakdown will increase reporting costs and will not ease comparability between institutions.
Consequently, we would suggest keeping the breakdown of the preceding templates used for benchmarking exercise with the different activities that are the most consistent breakdown applied by the majority of European banking institutions (Investment banking, retail banking, asset management, and others).
The templates have been revised, by introducing a more granular breakdown of remuneration by different business areas, control and corporate functions that were previously included in the ‘All other’ functions section of the previous template.
We draw your attention on the fact that European banks do not have the same organisation and that this level of granularity in activities will probably lead to inconsistency of remuneration data collected between institutions and will not ease relevant comparisons. Moreover it may have an impact on the quality of data and on the confidentiality of the remuneration data collected because due to the level of granularity requested it will lead to disclose remuneration data by individuals. Indeed, the more we ask for detailed activities and information, the more we increase the risk of discrepancies between banks and the less comparison will be relevant.
We understand that data requested in Annex 3 should correspond to the reporting under Article 450(1)(i) of regulation N° 575/2013, and as such only concerns regulated staff for the Group.
As the scope and perimeter are different from the data collection exercise regarding high earners as requested under Article 75(3) of Directive 2013/36/EU1 concerning the collection of information regarding the natural persons per institution remunerated EUR 1 million or more per financial year (matter of the other guidelines EBA), we suggest to clarify the scope of the information requested in Annex 3 and limit it to the staff who are material risk takers.
We need some clarification about the use of the currency conversion and exchange rate of the Commission for financial programming and the budget. As HR/financial systems use their own conversion table for the consolidation purpose of these data at group level (conversion tables that are furthermore controlled and validated by internal and external auditors), we understand that these exchange rates and conversion reference only apply to EU institutions that are located outside the Euro zone.
If Groups with their head offices in the Euro zone had to reconvert all “staff expenses” data included in their financial statements with marginally different exchange rates, this would be time consuming, costly and burdensome.
You point out that data relating to the performance year 2013 should be submitted by the institutions to competent authorities by 31 August 2014.
It seems that this deadline is not compatible with the 2-month “comply or explain” period given to local regulator after the publication of the guidelines translation. Consequently, we suggest extending the deadline for data submission by the end of 2014.
We do not agree with the fact that these new guidelines on benchmarking exercise will enable a more in-depth analysis of remuneration trends in different areas between institutions because it does not reflect the actual organisation of all institutions.
Indeed, you isolate “asset management” activities which are supposed to be out of scope the CRD4 and already covered by other regulator/regulation and you include in the “other” category many other significant activities within large banks organized as a group such as private banking, securities services, etc… Moreover, the distinctions between management functions versus supervisory functions and corporate functions versus control functions are also not really appropriate and highly depend on the internal organisation of each institution. This breakdown will lead to make this annual benchmarking exercise even more complex for institutions and will not ease comparability between European institutions.
Finally, as the employer contributions to benefits highly depend on the countries in which the institution is located and as in large banking institutions organised as a group, these amounts are paid and managed locally by each payroll departments and are not consistent with other remuneration components (salary and other fixed remuneration, annual variable compensation including both upfront and deferred parts, LTI, etc…) annually awarded to employees and usually followed-up globally at Group level, we suggest not to include in the amounts disclosed annually to the regulator for the purpose of this benchmark exercise the employer contributions to non-discretionary institution wide retirement and benefits schemes.