Response to consultation on Guidelines on sound remuneration policies

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Q 5: All respondents are welcome to provide their comments on the chapter on proportionality, with particular reference to the change of the approach on ‘neutralisations’ that was required following the interpretation of the wording of the CRD. In particular institutions that used ‘neutralisations’ under the previous guidelines for the whole institution or identified staff receiving only a low amount of variable remuneration are asked to provide an estimate of the implementation costs in absolute and relative terms and to point to impediments resulting from their nature, including their legal form, if they were required to apply, for the variable remuneration of identified staff: a) deferral arrangements, b) the pay out in instruments and, c) malus (with respect to the deferred variable remuneration). In addition those institutions are welcome to explain the anticipated changes to the remuneration policy which will need to be made to comply with all requirements. Wherever possible the estimated impact and costs should be quantified, supported by a short explanation of the methodology applied for their estimation and provided separately for the three listed aspects.

I believe it is important to distinguish between shares and options. I also think that it should be required that bank managers hold on to their shares for a longer period (until 1 year after they have left office). This would incentivize to make sure that their actions are conducive to the bank. Options incentivize managers to take risk; bank shares held by managers lead them to mitigate risk levels.

Q 8: Are the requirements regarding categories of remuneration appropriate and sufficiently clear?

I consider the criteria to choose performance measures rather vague. In my view any performance measure used at the top levels should reflect long term value. We know from research that use of other measures (like non financials) are associated with, randomness, favoritism and lenience. It should therefore be required that the firm uses value based measures and if not that it can substantiate why the other performance measure is predictive of future value and how the firm took measures to assure that the subjectivity associated with the use of this measures does not turn into randomness or favoritism.

Q 13: Are the requirements on remuneration policies in section 15 appropriate and sufficiently clear?

I consider the criteria to choose performance measures rather vague. In my view any performance measure used at the top levels should reflect long term value. We know from research that use of other measures (like non financials) are associated with, randomness, favoritism and lenience. It should therefore be required that the firm uses value based measures and if not that it can substantiate why the other performance measure is predictive of future value and how the firm took measures to assure that the subjectivity associated with the use of this measures does not turn into randomness or favoritism.

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Tilburg University