The European Banking Authority (EBA) published today its final Guidelines on sound remuneration policies together with its Opinion on proportionality, recommending exemptions from the remuneration principles in the Capital Requirements Directive (CRD IV). The guidelines ensure that institutions calculate correctly and consistently the so called ‘bonus cap' by setting out specific criteria for mapping all remuneration components into either fixed or variable pay and detailing how specific remuneration elements such as allowances, sign-on bonuses, retention bonuses and severance pay are to be recognised over time.
In particular, the Guidelines set out the governance process for implementing sound remuneration policies across the EU and clarify the process for identifying those categories of staff to whom the specific remuneration provisions of the CRD apply, including the so called bonus cap. Guidance is also provided on the application of deferral arrangements and the pay-out instruments ensuring that variable remuneration is aligned with the institution's risk profile in the long-term and that ex-post risk adjustments can be applied as appropriate.
Considering the huge diversity of national rules regarding the application of proportionality, including the waiving of requirements, which has led to an uneven playing field between institutions across the EU, the EBA, in its Opinion, considers that legislative action should be taken in order to clarify and ensure that the CRD remuneration requirements are applied consistently across the EU.
In this respect, the EBA believes that a proposal for a legislative change should be considered to explicitly support specific exemptions on the application of deferral arrangements and pay out of instruments, where certain criteria are met. In particular, it is the EBA's opinion that the disapplication of these requirements should be possible for small and non-complex institutions and for staff that receives only a small amount of variable remuneration. However, the Opinion clarifies that the application of the so called ‘bonus cap' should not be subject to any exemption.
In the absence of a clear legal basis for the application of waivers, the guidelines remain neutral on this particular aspect and refer to the general principle of proportionality as established in the CRD.
A report on the national application of proportionality showing the variety in the implementation of remuneration provisions across the EU is published together with the Opinion.
The EBA Guidelines will apply, as of 1 January 2017, to competent authorities across the EU, as well as to institutions on a solo and consolidated basis, including all subsidiaries which are not subject to the CRD IV framework.
Legal basis and next steps
These Guidelines have been developed on the basis of Articles 74 and 75 of Directive 2013/36/EC (CRD); they complement the CRD requirements that are into force since January 2014 and take into account the EBA Opinion on the use of allowances published in October 2014. The Guidelines will come into force on 1 January 2017 to allow sufficient time for institutions to adjust their remuneration policies during 2016. The previous CEBS Guidelines will be repealed on 31 December 2016.
The Guidelines are based on the so-called "comply or explain" principle, which means that Competent Authorities will have two months to express their intention to comply with them and in case of non-compliance, they will need to explain their intention not to comply. A compliance table will be published on the EBA website after the expiry of the two-month period according to Article 16(3) of the EBA founding regulation.