Remuneration

Following the article covering remuneration in Regulatory Roundup #16, the European Parliament voted on 7th July to amend elements of the Capital Requirements Directive (CRD3) impacting upon remuneration. The proposed rules are far wider in scope than the FSA’s existing remuneration policy (SYSC 19).

According to the European Parliament’s FAQs on the CRD3, ‘Hedge funds as such will be subject to separate legislation – the alternative investment fund managers directive – which is currently under negotiation. Hedge Fund managers who are investment firms as defined by the markets in financial instruments directive are covered, although the text makes it clear that these rules should be applied proportionately to investment firms’.

The proposed rules include for the deferral of at least 40% of variable remuneration over 3 to 5 years and a substantial portion of variable remuneration must consist of shares or share linked instruments. Upfront cash bonuses will be capped at 30% of the total bonus and to 20% for ‘particularly large bonuses’.

Subject to approval by the Council the rules on bonus provisions will then take effect in January 2011 (and those on capital requirements provisions no later than 31 December 2011). Interestingly, Parliament is calling for remuneration principles to be extended to cover all companies listed on stock exchanges in a non-legislative resolution (see the European Parliament press release link).

The Committee of European Banking Supervisors Report on high-level principles for Remuneration Policies, that was published in June 2010 (see link) states that further guidance will be published ahead of the CRD3 implementation. The FSA have planned a review of their remuneration code and are considering the impact on the current Remuneration Code in SYSC 19.

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