AIFM Directive
New requirements for remuneration schemes
Comparable remuneration in financial institutions
Further considerations

From July 2013 the European fund sector will be subject to new regulatory requirements concerning, in particular, the remuneration of fund managers and staff with control functions. Affected enterprises must adapt their existing remuneration schemes accordingly.

AIFM Directive

The Alternative Investment Fund Manager (AIFM) Directive (2011/61/EC) must be transposed into national law by July 22 2013. In December 2012 the German government adopted a bill on how to implement the AIFM Directive. It is expected that Parliament will enact the statute in the coming weeks so that it can enter into force on July 21 2013.

New requirements for remuneration schemes

In the future the national legislature will determine a significant part of risk management. Remuneration will have to be calculated in a sustainable and appropriate manner, without encouraging staff to take risks which are inconsistent with the risk profiles, contractual conditions or instruments of incorporation of the funds they manage.

Affected staff
The staff affected will comprise management, risk takers and staff with control functions, as well as all staff receiving a total remuneration that takes them into the same remuneration bracket as members of the management and risk takers whose professional activities have a material impact on the risk profiles of the AIFMs or alternative investment funds (AIFs) that they manage.

Specific requirements
In addition to the general requirements of sustainability and consistency with the business strategies, objectives, values and interests of the AIFM and the AIFs managed by it (or the investors in such AIFs), as well as discouragement of risk taking and measures for avoiding conflicts of interest, the act contains specific stipulations (Section 37(2) f the Capital Investment Code in conjunction with Annex II of the directive), including the following:

  • The fixed and variable components of the total remuneration must be appropriately balanced.
  • The fixed component must represent a sufficiently high proportion of the total remuneration to allow the operation of a fully flexible policy on variable remuneration components, including the possibility to pay a non-variable remuneration component.
  • In case of performance-related remuneration, an assessment will be undertaken not only of the performance of the individual employee and his or her business unit or of the AIF concerned, but also of the overall results of the AIFM (financial and non-financial criteria). The assessment of performance will further be set in a multi-year framework appropriate to the lifecycle of the AIFs managed by the AIFM.
  • The measurement of performance used to calculate variable remuneration components or pools of variable remuneration components must include a comprehensive adjustment mechanism to integrate all relevant types of current and future risks.
  • As a rule, at least 50% of the variable remuneration components must consist of units or shares in the AIF concerned, or equivalent ownership interests.
  • A significant portion of the variable remuneration component (at least 40%) must be deferred over a period which is correctly aligned with the nature of the risks of the AIF in question and appropriate in view of the lifecycle and redemption policy of the AIF (at least three to five years, unless the lifecycle of the AIF concerned is shorter).
  • The variable remuneration, including the deferred portion, must be paid or vested only if it is sustainable according to the financial situation of the AIFM as a whole, and be justified according to the performance of the business unit, the AIF and the individual concerned. The total variable remuneration will generally be considerably contracted where subdued or negative financial performance of the AIFM or AIFs concerned occurs.
  • Staff must undertake not to use personal hedging strategies or remuneration and liability-related insurance to undermine the risk alignment effects embedded in their remuneration arrangements.
  • Guaranteed variable remuneration is exceptional, may occur only in the context of hiring new staff and is limited to the first year.
  • The pension policy must be in line with the business strategy, objectives, values and long-term interests of the AIFM and the AIFs it manages.
  • Payments related to the early termination of a contract must reflect performance achieved over time and be designed in a way that does not reward failure.
  • AIFMs that are significant in terms of their size must establish a remuneration committee.

The European Securities and Market Authority published more detailed Guidelines on Sound Remuneration Policies under the AIFM Directive on February 11 2013 which will also have to be considered from July 22 2013 onwards.

The draft Capital Investment Code authorises the Federal Ministry of Finance to issue regulations providing more details, in particular with regard to the actual terms and conditions of the remuneration schemes. A corresponding draft has not yet been set up.

Comparable remuneration in financial institutions

The new requirements closely mirror the European directive which formed the basis for the regulation concerning regulatory requirements for remuneration systems of banks and financial services institutions issued at the end of 2010 (EU Capital Requirements Directive III, 2010/76/EU). There is much to suggest that enterprises will face similar questions when implementing these new rules, including the following:

  • Under which circumstances will fixed and variable components of the total remuneration be appropriately balanced?
  • Are existing remuneration agreements - of an individual or collective nature (eg, common company practice and works agreement) - invalid if they are in breach of the new requirements? If not, what steps required by the new act must be taken by the affected enterprises in order to adapt their commitments?
  • Are collective bargaining agreements concerning variable remuneration and respective works agreements based on collective bargaining agreements exempted from the scope of application of the new rules?
  • In which events does the financial situation of the AIFM justify a considerable contraction of remuneration?
  • Who will decide whether the AIFM has significant relevance and must therefore, for example, establish a remuneration committee?

It remains to be seen whether the Federal Ministry of Finance (or the Federal Financial Supervisory Authority) will address some of these issues in the pending regulation or whether those applying the law are left with the question of whether and to what extent they may rely on any analogy with the regulation concerning regulatory requirements for remuneration systems of banks and financial services institutions.

Further considerations

The implementation raises questions in terms of labour and employment law. For instance, it must be examined whether existing works agreements can be replaced by new agreements with the works council. This would avoid the enterprise having to enter into a new bonus agreement with each individual employee concerned.

Even if no up-to-date collective rules concerning variable remuneration exist, the co-determination right of the works council must be considered. This does not apply to the overall volume of the bonus benefits (ie, the bonus pot), but to their distribution.

In particular, the enterprises concerned will have to cope with the challenge of the new bonus scheme in a transparent manner and in accordance with the strict requirements set in the rulings of the Federal Employment Court. This may prove problematic not only in respect of the intended adjustment mechanisms for current and future risks, but also of the provision regarding clawback/non-payment in case of a weak financial situation of the AIFM.

Further, the most recent rulings of the Federal Employment Court concerning cut-off date clauses must be taken into account when it is intended to withhold a significant portion of the variable remuneration for a multi-year period. Thus, on one hand the employee may not be granted any claim for the bonus during the withholding period, and on the other the employee may not be unjustly deprived of remuneration components already earned.(1)

Finally, alternative courses of action must be considered in case employees and/or the works council refuse to agree on new bonus regulations. Withdrawing existing commitments, terminating works agreements, issuing (mass) notices of termination pending a change of contract or invoking the doctrine of change could be considered. However, case law imposes strict requirements on each of these options so that every individual case will have to be examined carefully.

For further information on this topic please contact Susanne Mujan, Bjoern Gaul or Bernd Roock at CMS Hasche Sigle by telephone (+49 211 4934 418), fax (+49 211 4934 126) or email (, or

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(1) See Federal Employment Court, January 18 2012, 10 AZR 667/10, 10 AZR 612/10 and 10 AZR 670/10.