FINANCIAL SERVICES
PwC reaction to CEBS guidelines on pay and bonuses for financial services firms
Following the publication of the Committee of European Banking Supervisors (CEBS) final interpretation of EU rules on pay and bonuses for financial services firms, PricewaterhouseCoopers issued the following statement on 10 December 2010.
Jon Terry, remuneration partner at PwC, said:
“Almost no concessions have been made since the draft guidelines were published in October, which caused outcry in the banking industry for deviating so heavily from global regulation patterns. Indeed today’s guidelines go further, introducing a requirement for firms to impose caps on the maximum ratio of variable to fixed pay for risk takers. European regulation of banking pay is now set to be the most stringent in the world.
“The main cause for concern is the capping of the cash element of bonuses at 20-30%, with the remainder either deferred or paid in shares/equity linked instruments and required to be held for an appropriate period of time consistent with the firm’s risk profile. Ultimately a banker working in Europe will get substantially less upfront cash than their global counterparts, unless banks boost base salaries. But increasing fixed costs will be pretty unpalatable at a time of continued economic uncertainty."
Terry added: “Investment firms will be comforted by the recognition by CEBS that the regulations can be applied in a proportionate manner to the sector although the requirements around deferral levels and the proportion of bonuses paid in shares remain firm unless the organisation can justify that they are able to completely neutralise such requirements. Many investment firms would have been looking to be able to apply a lower level of deferral but today’s guidelines confirm that this will not be the case.
“The FSA is likely to follow the tough CEBS line in its final remuneration code due within days. The question is whether the more onerous aspects of the FSA code which are not part of the CEBS rules will be relaxed to compensate. These include rules around deferred pay being subject to performance adjustment.
“Most now just want the details, so they can plan how to pay staff. The necessary delay in publication of the FSA code to incorporate CEBS will put the 2,500 affected firms under considerable pressure, and raises the spectre of some firms needing to push back their bonus announcements to later than normal.
“Equivalent regulation in the US will not be in place until April, and the US regulator may also ensure some distance between key areas of the requirements, such as the proportion of cash paid. Other non-European regulators have shown little appetite for prescription in these areas, placing EU regulated firms at a distinct disadvantage.”
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