On 13 January 2016, the Bank of England and PRA published a consultation paper setting out proposals for a new rule on buyouts of variable remuneration. This relates to the scenario when firms recruiting staff buy-out deferred bonus awards that would have been lost on leaving their previous employer.
The new rules state that buy-outs should be managed through the contract between the new employer and employee that would provide for the possibility of an ex-post risk adjustment to be applied on the basis of a determination notified by the previous employer. Should an ex-post risk adjustment be sought, the new employer would issue a contractual claim against their employee, for those sums already vested, supported by the previous employer’s notification. The new employer can also apply for a waiver if they have reason to believe a previous employer’s decision to apply an ex-post risk adjustment was manifestly unfair or unreasonable. The proposals only apply to Material Risk Takers at PRA-regulated firms.
The documentation issued describes the purpose of the proposed new rules as being to “… ensure greater alignment between risk and individual reward, to discourage excessive risk-taking and shorttermism and encourage more effective risk management”. The consultation closes on 13 April 2016.