The European Banking Authority (EBA) has published final guidelines on sound remuneration policies. The guidelines aim to ensure that financial institutions calculate correctly and consistently the so-called EU-wide ‘bonus cap’, setting out specific criteria for defining all aspects of remuneration as either fixed or variable pay. They also detail how specific pay elements such as allowances, retention bonuses and severance pay should be recognised over time.
In particular, the final guidelines set out the process for identifying which categories of staff should be covered by the bonus cap (broadly limiting total bonuses to 100% of base pay in any one period). The guidelines will apply from 1 January 2017, a year later than originally planned. The EBA proposes that staff receiving ‘low levels’ of remuneration should be exempt from some aspects of the guidelines but crucially not the bonus cap.
Commenting on the new guidelines, Jon Terry, reward partner at PwC, said:
‘Many assets managers and smaller banks will be very concerned that the EBA is proposing changes to the Directive that would require all firms, regardless of size, will be subject to the bonus cap . . . Despite some welcome changes made in the final guidelines, the collective set of rules proposed by the EBA continue the trend of ever stricter European banking remuneration regulations.’