The European Banking Authority (EBA) launched today a three-month public consultation on its Guidelines on sound remuneration policies. These draft Guidelines set out the governance process for implementing sound remuneration policies across the EU, as well as the specific criteria for mapping all remuneration components into either fixed or variable pay. Guidance is also provided on the application of deferral arrangements and the pay-out instruments ensuring that variable remuneration is aligned with an institution's long-term risks and that any ex-post risk adjustments can be applied as appropriate.
These draft Guidelines complement the EBA Opinion on allowances issued in October 2014 by providing additional details in support of the principles formulated in it, so as to ensure compliance with the bonus cap introduced by the Capital Requirements Directive (CRD IV). In particular, the Guidelines clarify the process for identifying those categories of staff whose professional activities have a material impact on the institutions' risk profile, and do so on the basis of the criteria that were defined in the EBA Regulatory Technical Standard (RTS) on identified staff.
Specific guidance is provided on how the ratio between the variable and the fixed components of remuneration should be calculated, taking into account specific remuneration elements, such as allowances, sign-on bonus, retention bonus and severance pay. The document also covers pay-out processes and types of instruments used to pay variable remuneration, in line with the provisions defined in the EBA standards on classes of instruments and the combination of different categories of instruments.
On the application of proportionality to the remuneration principles, these draft Guidelines follow a legal reading of the CRD IV, supported by the European Commission, that the requirements on deferral and payment in instruments have to be applied to all institutions. On this point, the EBA is of the view that specific exemptions could be introduced for certain institutions that do not rely extensively on variable remuneration and, if confirmed by further analysis, also for identified staff that receive only a low amount of variable remuneration. To this regard, the Authority intends to send its advice to the European Commission suggesting legislative amendments that would allow for a broader application of the proportionality principle and is, therefore, asking all interested parties to provide input on this aspect.
The EBA Guidelines will apply 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. Once the new Guidelines will be enforced, the previous Guidelines on remuneration policies and practices from 2010 will be repealed.
Comments to this consultation can be sent to the EBA by clicking on the "send your comments" button on the consultation page. Please note that the deadline for the submission of comments is 4 June 2015.
A public hearing will take place at the EBA premises on 8 May 2015 from 13:30 to 16:00 UK time. All contributions received will be published following the end of the consultation, unless requested otherwise.
Legal basis and next steps
These draft Guidelines have been developed on the basis of Articles 74 and 75 of Directive 2013/36/EC (CRD IV). Competent Authorities across the EU will be expected to implement the Guidelines by the end of 2015, so as to ensure that all institutions apply them for the performance year 2016 and onwards. 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.