Report contents:

  1. Allowances
  2. 100% or 200% of fixed pay
  3. 2016

The European Banking Authority (EBA) has recently issued two papers on the bonus cap for key staff in firms caught by CRDIV.

Allowances

The first paper details how member states have reacted to the EBA’s October 2014 opinion.

In the UK and many other Member States, the bonus cap limits variable pay at 100% of fixed pay or 200% of fixed pay if shareholder approval is received. Some firms awarded additional fixed “allowances” to key staff members which could be withdrawn in certain cases and so avoided the drawback of a fixed cost yet counted as fixed pay (and so increased the potential bonus). The paper notes that the UK had been the most frequent use of these allowances.

The EBA was concerned that many of the terms of the allowances it had seen (often known as fixed or role-based allowances) in fact prevented them from being fixed pay because amongst other reasons permanence is a core feature of fixed pay yet they could be withdrawn or varied. In its October 2014 opinion it gave notice that firms should move to change arrangements to conform with its views, although it and national authorities accepted that it was probably too late for the 2015 bonus round to be affected. While the paper does not cover what is currently happening, most affected firms are in fact complying with the EBA rules on what allows fixed allowances to be fixed pay.

The report sets out some of the action that relevant Member States have taken and the criteria that are used, as well as the EBA’s own expectations of the characteristics that allowances need to have to be fixed pay.

This is therefore partly of historic interest, but the paper still gives an EU wide overview of pay arrangements and national authority responses to them.

100% or 200% of fixed pay

The second paper looks at 15 Member States where firms have been permitted to pay bonuses of up to 200% of fixed pay. (The basic bonus cap is set at 100% of fixed pay – member states have discretion to allow firms to go up to 200% of fixed pay).

The paper sets out the expected variation in pay practices across the EU but notes that in jurisdictions where some banks operate a 200% cap, others operate with a 100% cap, with the implication being that some businesses operate perfectly acceptably within the lower cap.

2016

So far the bonus cap has just been limited to CRDIV firms and AIFMs and UCITS managers have been spared the formal bonus capping rules in their relevant regimes. There has been no suggestion either of any extension of the bonus cap to them. The EBA promises revised remuneration guidelines shortly (by the end of the year) and the European Commission is in 2016 reviewing the operation of CRDIV remuneration arrangements with a view to considering whether changes are needed to CRDIV itself. 2016 could therefore see still further changes to both the cap itself and the ways in which firms try to address it to recruit, motivate and retain staff.