On 23 July 2015 ESMA issued a consultation paper which sets out proposed Guidelines on sound remuneration policies under the UCITS V Directive. Under UCITS V, management companies and investment companies that have not designated a management company are required to establish and apply remuneration policies that promote sound and effective risk management (for simplicity we have only referred to ManCos below). The draft Guidelines further clarify these requirements. As the UCITS V remuneration principles broadly reflect those under AIFMD, the draft Guidelines are based on remuneration guidelines issued under AIFMD, but are adapted to reflect the differences between the two Directives.

Categories of staff to which the rules apply

The draft Guidelines specify that the following categories of staff should be made subject to the remuneration rules, unless it is demonstrated that the relevant member of staff has no material impact on the ManCo’s risk profile or on that of the UCITS it manages:

  • Executive and non-executive directors
  • Senior management
  • Staff involved in compliance, internal audit and risk management functions
  • Staff responsible for heading up the portfolio management, administration, marketing and human resources divisions
  • Other risk takers who take decisions that materially affect the risk positions of the ManCo or of the UCITS it manages, for instance, individual traders
  • Categories of staff to which investment management activities have been delegated by the ManCo, whose professional activities have a material impact on the risk profiles of the UCITS that it manages

Definition of remuneration

The draft Guidelines provide that remuneration consists of:

  • All forms of payments or benefits paid by the ManCo
  • Any amount paid by the UCITS itself, including performance fees
  • Any transfer of units or shares of the UCITS

Both components of remuneration (fixed and variable) may include direct monetary payments or benefits (such as cash or share options) or indirect monetary benefits (such as special allowances for car, mobile phone, etc.). Ancillary payments or benefits that are part of a general, non-discretionary, ManCo-wide policy and which pose no incentive effects in terms of risk assumption can be excluded from the definition of remuneration.

ManCos should ensure that variable remuneration is not paid through vehicles or methods that facilitate the avoidance of the remuneration rules.


When delegating investment management activities, the draft Guidelines require that either:

  • The entities to which investment management activities have been delegated should be subject to equivalent regulatory requirements on remuneration; or
  • Appropriate contractual arrangements with those entities should be put in place in order to ensure that there is no circumvention of the remuneration rules. These contractual arrangements should cover any payments made to the delegates’ identified staff as compensation for the investment management activities on behalf of the ManCo.

The draft Guidelines provide that a delegated entity would be considered subject to equivalent regulatory requirements on remuneration if:

  • It is subject to the remuneration rules under either the Capital Requirements Directive (CRD IV) or AIFMD.
  • Its staff (who are identified staff for the purpose of the draft Guidelines) are subject to CRD IV or AIFMD remuneration rules.

It is noteworthy that the draft Guidelines do not deem the MiFID remuneration rules equivalent.


The UCITS V remuneration requirements are subject to the principle of "proportionality". The concept of proportionality means that not all ManCos will have to comply in full with the remuneration requirements.

The draft Guidelines provide that proportionality may, subject to certain conditions, lead to the disapplication of the following requirements if this is reconcilable with the risk profile, risk appetite and strategy of the ManCo and the UCITS it manages:

  • Requirement for the payment of at least 50% of variable remuneration in units or shares of the UCITS managed by the ManCo or in equivalent instruments
  • Retention of variable remuneration
  • Deferral of variable remuneration payments
  • Ex post incorporation of risk for variable remuneration
  • Requirement to establish a remuneration committee

It should be noted that these requirements, if disapplied, must be disapplied in their entirety.

The draft Guidelines also state that, when applying the proportionality principle, a ManCo should focus on the combination of size, internal organisation and nature, scope and complexity of its activities and any other additional criteria that the ManCo considers to be relevant.

Next steps

ESMA will consider the feedback received to the consultation and will aim to publish the finalised UCITS Remuneration Guidelines by Q1 2016 ahead of the transposition deadline for the UCITS V Directive (18 March 2016).