The Council of the EU and the European Parliament have announced that they have reached agreement on the new remuneration provisions to be included in the amended Capital Requirements Directive ("CRD IV"). These new rules will impose strict caps on the amount of variable pay that can be paid by investment banks and other firms subject to CRD IV to affected staff.
The new rules will impose a maximum limit on the amount of variable pay that may be paid to that of one time an individual's fixed salary (i.e. a ratio of fixed to variable pay of 1:1). This ratio could be increased to 1:2 but only with the express approval of at least 65 percent of a firm's shareholders owning half the shares represented, or of 75 percent of votes if there is no quorum. Further, where the amount of variable pay exceeds the 1:1 ratio, a quarter of the individual's entire variable pay will have to be deferred for at least five years.
It is expected that the deferred element of an individual's variable pay may be made up of certain instruments, which may be assigned a lower value for the purposes of calculating the ratio. No substantive details on these proposals have been published as yet.
The new rules are expected to be voted on at the European Parliament plenary session in mid-April.