In brief

Against a background where the European Central Bank ("ECB") is recommending that credit institutions refrain from share buybacks and paying out dividends until 1 January 2021, the ECB has announced that banks should adopt "extreme moderation" in relation to variable remuneration payments also until 1 January 2021. Separately, the European Banking Authority ("EBA") has published their report on benchmarking of remuneration practices at an EU level.


Extension of the Bonus, Dividend and Share Buyback Ban

On 27 March 2020, the ECB recommended that, until at least 1 October 2020, credit institutions refrain from undertaking share buybacks and paying out (or entering into irrevocable commitments to pay out) dividends for the financial years 2019 and 2020. The ECB has now published a recommendation extending their original recommendation in relation to share buybacks and dividends until 1 January 2021.

Additionally, in a letter issued on 28 July 2020, the ECB announced that banks should adopt "extreme moderation" in relation to variable remuneration payments until 1 January 2021, particularly for material risk takers. No measures should be implemented to compensate staff for any reduction of variable remuneration and, to the extent that reductions cannot be implemented, the deferral of variable remuneration should be considered. The ECB does not expect institutions to expose themselves to litigation or legal risk when implementing these changes. However, the ECB also warned that the reputational impact of paying variable remuneration during a global crisis should not be underestimated.

 

Benchmarking Remuneration Practices at an EU Level

On 22 July 2020, the EBA published its report on benchmarking of remuneration practices at an EU level. Under the Capital Requirements Directive IV ("CRD IV"), the EBA is required to benchmark remuneration trends at the EU level and publish aggregated data on high earners earning EUR 1 million or more in any financial year.

Among the various findings outlined in the EBA's report, the number of high earners who were awarded EUR 1 million or more remained generally stable in 2018, with a small increase of 1.58% in comparison to 2017. Additionally, the EBA noted that the regulatory framework for remuneration practices is still not sufficiently harmonized, primarily due to differences in the implementation of CRD IV at a national level. In particular, the application of deferral and pay out in instruments differs significantly among EU and EEA Member States and institutions. The EBA anticipates that these practices will be further harmonized following the implementation of the Capital Requirements Directive V by 28 December 2020.