The Committee of European Banking Supervisors (CEBS) has issued final guidelines clarifying the position on remuneration practices and lessening the obligation on certain institutions to comply with some of the requirements outlined in the Third Capital Requirements Directive 2010/76/EU (“CRD III”).
CRD III requires that:
- at least 50% of variable remuneration should be paid in shares or other securities;
- 40% - 60% of variable remuneration is to be deferred for 3-5 years; and
- discretionary pension payments should be made in shares and will be subject to retention by the company for a 5 year period following the beneficiary’s departure from the company or his or her retirement.
The principle of proportionality will apply to neutralise some of the CRD III requirements where this is appropriate given the risk profile and strategy of the institution. However, requirements cannot be partially neutralised (for example, by reducing the percentage of variable remuneration to be deferred from 40% to 30%). If an institution cannot justify complete neutralisation of a requirement, it must comply with the full requirement. Additionally, neutralisation is never automatic and institutions will need to explain their rationale for every potentially neutralised requirement.
Smaller or less complicated institutions may also have reduced obligations concerning disclosure of remuneration practices. Such institutions may only need to disclose some qualitative information and very basic quantitative information (however, if they do not provide all information required under CRD III they will still need to demonstrate how they have applied the proportionality principle to neutralise some of the requirements).