Response to consultation on remuneration of sales staff
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Starting with commenting on point 1.3 and 1.4 in the draft guidelines and the situation in Sweden. Collective agreements in Sweden include policies on design of the remuneration policies concerning for example salary negotiation and how much of the salary that can be variable. The criteria on how to assess performance is also addressed in the central collective agreements for the bank sector in Sweden.
There are Joint Recommendations on Principles of Pay in the central collective agreement in Sweden, between the Finance Sector Union and the Employers’ Association of the Swedish Banking Institutions. The central parties presume that a local principle of pay shall be adopted at the individual companies. According to the central collective agreement, the joint principles of pay that are agreed locally should include long-term goals as well as the intended orientation of the bank’s system for the determination of pay. The principles of pay should also describe how the influence of the local trade union organisation over the determination of pay at the bank/company should be set up. In the principles of pay there shall be clear and known guidelines regarding the requirements for working at the bank in order to ensure that the determination of pay is fair and transparent. It is important that pay is determined in such a way that employees have faith in the system and understand the process. There must also be possibilities for the local trade union organisation to participate in the process.
NFU therefore finds it problematic that EBA has neglected a reference to the role of social partners and collective agreements in the guidelines to ensure that the collective agreements are not interfered with, and are allowed to continue to play their role as a key instrument for governing pay in the most effective manner, in accordance with national practice and the EU’s subsidiarity principle.
Within banking in Denmark the remuneration policies are mainly defined by the social partners when bargaining and agreeing upon the collective agreement. The central collective agreement defines regulations on fixed salary, temporary allowances and pension. The general collective agreement also defines a possibility for local collective agreements concerning remuneration. This gives the local partners the possibility to define a remuneration system based on defined job functions and evaluation criteria in relation to remuneration. These can also include agreements on variable salary parts. As no reference is made to collective agreements, it is evident that the EBA Guidelines are aiming to regulate elements which today is defined in the Danish financial collective agreement specifically remuneration both in relation to fixed pay, temporary allowances, pension schemes and to some extent variable pay. If the bargaining of collective agreements is restricted, it will affect the balance between the social partners and will limit the bargaining options reducing the possible influence from the organization representing the employees. In addition to the above described remuneration options within the collective agreement the institutions can implement an additional remuneration, e.g. individual bonuses, variable salary parts, with little or no link to the collective agreement.
In Norway, the Finance Sector Union and Finance Norway have a joint declaration on remuneration policies in their general collective agreement (Link here). According to the joint declaration, the individual company's profitability and earnings must, together with national economic considerations, be normative for the pay formation. The employees are an important value creation factor, which must be taken into consideration in the remuneration of the employees. It also reads that the individual company may, if so desired, use pay systems that, in their form, are not fixed pay systems. Performance-related pay may therefore be agreed for specific groups of employees in the company-level agreement.
Companies are able through this joint declaration to use remuneration systems in their local collective agreements. The proposed guidelines could interfere with the autonomy of the collective agreements at the national level also in Norway. As NFU is attempting to show here, each country does have a different economic outlook – and wage formation is crucial in this respect for upholding fair and effective remuneration systems that are adapted to national circumstances. NFU means that the particularities of the Nordic region needs to be upheld.
It is essential that the EBA respects the right to regulate systems for pay and wages through collective negotiations covering all levels of collective bargaining, both centralized and local. NFU therefore proposes to add a paragraph under chapter one (Design) in the draft Guidelines saying that “Where applicable, collective agreements, or other arrangements provided for by social partners, as well as national and Union law on the involvement of trade unions and workers’ representatives should be complied with in this regard.” A similar writing is found under BRRD (2014/59/EU) recital 35.
Going back to 1.3 in the draft guidelines and that the HR function and compliance function should inform of the policies and give effective input: what is important to recognize here is that the compliance function may not even have the right to give effective input on this topic in all EU Member States since this is not regulated well on either EU or national level. Also, what is the status and effect of the opinion made by the compliance function and at what point in time should the opinion be given, prior to the adoption of the guidelines or afterwards?
While we know that we are now discussing different Guidelines from EBA we fear that the Guidelines based on CRD 4 will set a precedence with regards to EBAs incomplete interpretation of the right to free collective bargaining under CRD 4.
The current draft EBA Guidelines are issued pursuant to Article 16 of Regulation (EU) No 1093/2010 and the possible addressees of such Guidelines are financial institutions and competent authorities. Thus, the Guidelines cannot address other natural or legal persons. As stated above the vast majority of financial institutions in the Nordics are bound by collective agreements, negotiated by the social partners, which the individual financial institutions cannot change or deviate from. Any breach of a collective agreement can have serious consequences for the financial institution in question.
Therefore, if any parts of any EBA Guidelines interfere with provisions in collective agreements, this can leave financial institutions that are obliged by such a collective agreement in precarious situations. Also, it seems to make little sense to put obligations on the individual financial institutions in EBA Guidelines concerning matters that are dealt with in collective agreements binding those financial institutions, since the institutions cannot unilaterally deviate from those agreements. As stated before in this consultation, the impact assessment of EBA has not taken these aspects into consideration.
We agree to a great extent with EBAs rationale behind the guidelines, but the role of social partners and collective agreements have to be taken into account when developing guidelines like these. We believe that it is instead helpful for the financial institutions and authorities if the role of social partners is clarified. We recommend that EBA includes a writing that collective agreements should be complied with accordingly (as proposed under Q1), giving the institutions an increased security in their remuneration policies and practices.
On another note, under 3.3 it reads that the compliance function should confirm that the remuneration policies and practices comply with the guidelines. What if the compliance function does not confirm the policies? What are the consequences?
NFU would like to draw EBA’s attention to both CRD 4 recital 69 and UCITS V recital 10 where it is made clear that any remuneration policies are without prejudice to the right of free collective bargaining. As mentioned already, this has not been recognised by EBA, neither concerning CRD 4 or UCITS V.
The right to free collective bargaining is crucial to NFU as our seven affiliates are trade unions in bank and insurance in all the Nordic countries and represent around 150 000 employees. In the Nordic countries it is the Nordic model of collective bargaining that is the foundation of the labour market. The Nordic model presupposes, based on more than 100 years of best practice, that it is the social partners who are best placed to set wages and working conditions for employees. Therefore, in the Nordic Area, it is the social partners; employers and trade unions, who work with wage formation, through collective bargaining. The state does not participate in wage formation but creates the preconditions for the partners to do their job. Wage formation through collective agreements in free negotiations between the social partners is a fundamental cornerstone of the Nordic model.
We note that the Guidelines apply to a very broad category of staff, a category which is often covered by collective agreements in the Nordic countries. We also note that the Guidelines cover both variable pay and fixed salary. This increases the risk that the Guidelines will interfere with collective bargaining.
Regarding 3.1 (2.b) NFU is glad to see that EBA recognises the unfair pressure exerted from management on sales staff. We however want to emphasize that the sales pressure is not always connected to remuneration practices. It can just as well be connected to being measured, other types of incentives and negative incentives such as punishments if not living up to sales targets put in place by the management. The overall company culture is crucial to take into account in this regard.
It can be of interest to EBA that NFU recently published a study on performance measurement systems in the Nordic financial sectors and how measurements affects the work situation of employees and consumer protection. Almost half of the survey respondents in the study stated that performance measurement systems are perceived to decrease the quality of employees’ work. This is highly worrying as it could have a negative effect of customer satisfaction, loyalty and trust in the financial sector. Secondly, 45 % of the respondents stated that performance measurement systems give incentives to sell or advice one product over another. From a consumer perspective, this is cause for concern. You can find the full report for download on our website: www.nordicfinancialunions.org
The above reasoning is closely connected to 3.2 (12) concerning EBAs broad definition of remuneration. EBA writes that remuneration in this regard can also be non-monetary incentives which is true but fails to acknowledge the non-incentives or punishments that can be explanations for mis-selling as well. Sales staff can fear for their jobs or position or that they will not get a pay raise or further competence training if they are continuously measured and fail to fulfil their sales targets. This creates a negative incentive pushing sales staff to sell potentially unsuitable products and services, a problem which should be recognised by EBA.
Further on under 3.2 (13), NFU finds it good that EBA means that remuneration should not be solely linked to a quantitative target or to promote one product over another. Employees should in general have a fixed remuneration as a basis that can provide for an adequate living standard. Employees do want to do their best to meet customers’ needs and demands, and customers are best served by employees who are allowed to provide high quality service and not only focus on quantitative targets. NFU means that sales targets and performance measurement systems must not have a negative impact on the employee-customer relation as is sometimes the case in the Nordic financial sectors. Again, these measurement systems and sales targets are not always based on remuneration as defined by EBA (see comment above on 3.2. (12)).
Under the first bullet point on 3.2 (14) EBA writes that “The remuneration policy is in line with these strategic goals, is based mainly on the total volumes of banking products offered or provided to consumers and does not take into account consumers’ rights and interests.”
NFU wants to stress the importance that the so-called profit sharing program covering most or all employees in a bank are not restricted by the draft guidelines. These types of profit sharing systems are based on the results of the bank and are equally distributed among the employees and do not create any direct incentives to sell. On the contrary, these types of systems should be considered as something positive as they show to the employees that they are valuable to the company. The profit sharing systems can therefore be added to the list under 3.2 (15).
In the list of good and positive measures under 3.2 (15), NFU wants to add under the 6th bullet point that the financial institutions should not only be encouraged to do sample studies with their customers on how they find their remuneration policies. The institutions should be equally expected to actually ask their own sales staff on how they find their remuneration policies, sales targets and performance measurements. Do their sales staff find that they are encouraged and have enough time to act in accordance with the consumers’ rights and interests?
1) Do you agree with Guideline 1 on design?
Nordic Financial Unions (NFU) fully supports that the financial sector should have long-term oriented as well as fair and sound remuneration policies. Company objectives should perform in line with interests of government and society as a whole and mis-selling must be prevented. However, it is essential that the right of free collective bargaining is not restricted by any remuneration rules coming from the EU, including guidelines from the European Supervisory Authorities. As EBA did not include the aspect of collective bargaining in its impact assessment of these draft guidelines, which is regrettable, NFU wants to draw EBA’s attention to why and how these draft guidelines can have an effect on collective bargaining in the Nordic countries.Starting with commenting on point 1.3 and 1.4 in the draft guidelines and the situation in Sweden. Collective agreements in Sweden include policies on design of the remuneration policies concerning for example salary negotiation and how much of the salary that can be variable. The criteria on how to assess performance is also addressed in the central collective agreements for the bank sector in Sweden.
There are Joint Recommendations on Principles of Pay in the central collective agreement in Sweden, between the Finance Sector Union and the Employers’ Association of the Swedish Banking Institutions. The central parties presume that a local principle of pay shall be adopted at the individual companies. According to the central collective agreement, the joint principles of pay that are agreed locally should include long-term goals as well as the intended orientation of the bank’s system for the determination of pay. The principles of pay should also describe how the influence of the local trade union organisation over the determination of pay at the bank/company should be set up. In the principles of pay there shall be clear and known guidelines regarding the requirements for working at the bank in order to ensure that the determination of pay is fair and transparent. It is important that pay is determined in such a way that employees have faith in the system and understand the process. There must also be possibilities for the local trade union organisation to participate in the process.
NFU therefore finds it problematic that EBA has neglected a reference to the role of social partners and collective agreements in the guidelines to ensure that the collective agreements are not interfered with, and are allowed to continue to play their role as a key instrument for governing pay in the most effective manner, in accordance with national practice and the EU’s subsidiarity principle.
Within banking in Denmark the remuneration policies are mainly defined by the social partners when bargaining and agreeing upon the collective agreement. The central collective agreement defines regulations on fixed salary, temporary allowances and pension. The general collective agreement also defines a possibility for local collective agreements concerning remuneration. This gives the local partners the possibility to define a remuneration system based on defined job functions and evaluation criteria in relation to remuneration. These can also include agreements on variable salary parts. As no reference is made to collective agreements, it is evident that the EBA Guidelines are aiming to regulate elements which today is defined in the Danish financial collective agreement specifically remuneration both in relation to fixed pay, temporary allowances, pension schemes and to some extent variable pay. If the bargaining of collective agreements is restricted, it will affect the balance between the social partners and will limit the bargaining options reducing the possible influence from the organization representing the employees. In addition to the above described remuneration options within the collective agreement the institutions can implement an additional remuneration, e.g. individual bonuses, variable salary parts, with little or no link to the collective agreement.
In Norway, the Finance Sector Union and Finance Norway have a joint declaration on remuneration policies in their general collective agreement (Link here). According to the joint declaration, the individual company's profitability and earnings must, together with national economic considerations, be normative for the pay formation. The employees are an important value creation factor, which must be taken into consideration in the remuneration of the employees. It also reads that the individual company may, if so desired, use pay systems that, in their form, are not fixed pay systems. Performance-related pay may therefore be agreed for specific groups of employees in the company-level agreement.
Companies are able through this joint declaration to use remuneration systems in their local collective agreements. The proposed guidelines could interfere with the autonomy of the collective agreements at the national level also in Norway. As NFU is attempting to show here, each country does have a different economic outlook – and wage formation is crucial in this respect for upholding fair and effective remuneration systems that are adapted to national circumstances. NFU means that the particularities of the Nordic region needs to be upheld.
It is essential that the EBA respects the right to regulate systems for pay and wages through collective negotiations covering all levels of collective bargaining, both centralized and local. NFU therefore proposes to add a paragraph under chapter one (Design) in the draft Guidelines saying that “Where applicable, collective agreements, or other arrangements provided for by social partners, as well as national and Union law on the involvement of trade unions and workers’ representatives should be complied with in this regard.” A similar writing is found under BRRD (2014/59/EU) recital 35.
Going back to 1.3 in the draft guidelines and that the HR function and compliance function should inform of the policies and give effective input: what is important to recognize here is that the compliance function may not even have the right to give effective input on this topic in all EU Member States since this is not regulated well on either EU or national level. Also, what is the status and effect of the opinion made by the compliance function and at what point in time should the opinion be given, prior to the adoption of the guidelines or afterwards?
3) Do you agree with Guideline 3 on approval and monitoring?
NFU found EBAs analysis (pages 115-116) of collective bargaining as very troublesome in the Final Guidelines on Sound Remuneration Policies, with legal basis in CRD 4. Even if article 153(5) TFEU may not be applicable in that case, it is clear that EBA has only chosen to interpret one part of recital 69 in CRD 4, the one concerning art 153 (5) TFEU. However, when adopting remuneration policies with legal basis in CRD 4, EBA has to ensure and recognise, in accordance with recital 69 CRD4 that its guidelines do not interfere with general principles of national contract and labour law, and the rights, where applicable, of the social partners to conclude and enforce collective agreements, in accordance with national law and customs.While we know that we are now discussing different Guidelines from EBA we fear that the Guidelines based on CRD 4 will set a precedence with regards to EBAs incomplete interpretation of the right to free collective bargaining under CRD 4.
The current draft EBA Guidelines are issued pursuant to Article 16 of Regulation (EU) No 1093/2010 and the possible addressees of such Guidelines are financial institutions and competent authorities. Thus, the Guidelines cannot address other natural or legal persons. As stated above the vast majority of financial institutions in the Nordics are bound by collective agreements, negotiated by the social partners, which the individual financial institutions cannot change or deviate from. Any breach of a collective agreement can have serious consequences for the financial institution in question.
Therefore, if any parts of any EBA Guidelines interfere with provisions in collective agreements, this can leave financial institutions that are obliged by such a collective agreement in precarious situations. Also, it seems to make little sense to put obligations on the individual financial institutions in EBA Guidelines concerning matters that are dealt with in collective agreements binding those financial institutions, since the institutions cannot unilaterally deviate from those agreements. As stated before in this consultation, the impact assessment of EBA has not taken these aspects into consideration.
We agree to a great extent with EBAs rationale behind the guidelines, but the role of social partners and collective agreements have to be taken into account when developing guidelines like these. We believe that it is instead helpful for the financial institutions and authorities if the role of social partners is clarified. We recommend that EBA includes a writing that collective agreements should be complied with accordingly (as proposed under Q1), giving the institutions an increased security in their remuneration policies and practices.
On another note, under 3.3 it reads that the compliance function should confirm that the remuneration policies and practices comply with the guidelines. What if the compliance function does not confirm the policies? What are the consequences?
4) Do you see a need for any additional requirements?
Continuing on the arguments made under Q3 in this consultation, NFU means that it is essential that EBA respects the right to collective bargaining and includes a reference to this delegated right and by that exclude elements of the Guidelines that are negotiated and agreed upon in collective agreements and joint principles of pay in individual companies.NFU would like to draw EBA’s attention to both CRD 4 recital 69 and UCITS V recital 10 where it is made clear that any remuneration policies are without prejudice to the right of free collective bargaining. As mentioned already, this has not been recognised by EBA, neither concerning CRD 4 or UCITS V.
The right to free collective bargaining is crucial to NFU as our seven affiliates are trade unions in bank and insurance in all the Nordic countries and represent around 150 000 employees. In the Nordic countries it is the Nordic model of collective bargaining that is the foundation of the labour market. The Nordic model presupposes, based on more than 100 years of best practice, that it is the social partners who are best placed to set wages and working conditions for employees. Therefore, in the Nordic Area, it is the social partners; employers and trade unions, who work with wage formation, through collective bargaining. The state does not participate in wage formation but creates the preconditions for the partners to do their job. Wage formation through collective agreements in free negotiations between the social partners is a fundamental cornerstone of the Nordic model.
5) Do you have any other comments?
NFU would like to comment on the background and rationale to the draft Guidelines, as presented by EBA.We note that the Guidelines apply to a very broad category of staff, a category which is often covered by collective agreements in the Nordic countries. We also note that the Guidelines cover both variable pay and fixed salary. This increases the risk that the Guidelines will interfere with collective bargaining.
Regarding 3.1 (2.b) NFU is glad to see that EBA recognises the unfair pressure exerted from management on sales staff. We however want to emphasize that the sales pressure is not always connected to remuneration practices. It can just as well be connected to being measured, other types of incentives and negative incentives such as punishments if not living up to sales targets put in place by the management. The overall company culture is crucial to take into account in this regard.
It can be of interest to EBA that NFU recently published a study on performance measurement systems in the Nordic financial sectors and how measurements affects the work situation of employees and consumer protection. Almost half of the survey respondents in the study stated that performance measurement systems are perceived to decrease the quality of employees’ work. This is highly worrying as it could have a negative effect of customer satisfaction, loyalty and trust in the financial sector. Secondly, 45 % of the respondents stated that performance measurement systems give incentives to sell or advice one product over another. From a consumer perspective, this is cause for concern. You can find the full report for download on our website: www.nordicfinancialunions.org
The above reasoning is closely connected to 3.2 (12) concerning EBAs broad definition of remuneration. EBA writes that remuneration in this regard can also be non-monetary incentives which is true but fails to acknowledge the non-incentives or punishments that can be explanations for mis-selling as well. Sales staff can fear for their jobs or position or that they will not get a pay raise or further competence training if they are continuously measured and fail to fulfil their sales targets. This creates a negative incentive pushing sales staff to sell potentially unsuitable products and services, a problem which should be recognised by EBA.
Further on under 3.2 (13), NFU finds it good that EBA means that remuneration should not be solely linked to a quantitative target or to promote one product over another. Employees should in general have a fixed remuneration as a basis that can provide for an adequate living standard. Employees do want to do their best to meet customers’ needs and demands, and customers are best served by employees who are allowed to provide high quality service and not only focus on quantitative targets. NFU means that sales targets and performance measurement systems must not have a negative impact on the employee-customer relation as is sometimes the case in the Nordic financial sectors. Again, these measurement systems and sales targets are not always based on remuneration as defined by EBA (see comment above on 3.2. (12)).
Under the first bullet point on 3.2 (14) EBA writes that “The remuneration policy is in line with these strategic goals, is based mainly on the total volumes of banking products offered or provided to consumers and does not take into account consumers’ rights and interests.”
NFU wants to stress the importance that the so-called profit sharing program covering most or all employees in a bank are not restricted by the draft guidelines. These types of profit sharing systems are based on the results of the bank and are equally distributed among the employees and do not create any direct incentives to sell. On the contrary, these types of systems should be considered as something positive as they show to the employees that they are valuable to the company. The profit sharing systems can therefore be added to the list under 3.2 (15).
In the list of good and positive measures under 3.2 (15), NFU wants to add under the 6th bullet point that the financial institutions should not only be encouraged to do sample studies with their customers on how they find their remuneration policies. The institutions should be equally expected to actually ask their own sales staff on how they find their remuneration policies, sales targets and performance measurements. Do their sales staff find that they are encouraged and have enough time to act in accordance with the consumers’ rights and interests?