Earlier this year the European Commission asked the European Banking Authority (EBA) to investigate the use across the EU banking sector of so-called "role-based" allowances, which have been used following the EU's decision to limit the variable remuneration paid by banks, building societies and investment firms to 100% of the fixed component (200% with shareholders' approval).
Last week the EBA published its findings which reveal that some institutions have classified role-based allowances as part of the fixed component of remuneration. The report showed that most of the allowances did not fulfil the conditions for being classified as fixed remuneration, particularly because of their discretionary nature.
In an official opinion, based on the findings in the report, the EBA states that if role-based allowances do not meet the requirements for fixed remuneration (because they are not predetermined, transparent, permanent and non-revocable) then they are in fact discretionary and should be classified as variable not fixed remuneration. The opinion advises institutions to change their remuneration policies accordingly so that they are not circumventing the bonus cap rules.