Remuneration under CRD 4: Role-Based Allowances

As we know, the European Banking Authority’s consultation on ‘Sound Remuneration Policies’ (CP 2015/03) closed on 4 June – see Regulatory Roundup 65.

Among the aspects touched upon in the consultation was the need to categorise remuneration as either variable or fixed with parameters being provided (see para 117 of Title III onwards) to determine the fixed component.  This is particularly important under CRD 4 framework because of the ‘bonus cap’; Article 94(g) of the Capital Requirements Directive (2013/36) requires that the variable component shall not exceed 100% of the fixed component of the total remuneration for each individual (the figure can be increased to 200% subject to shareholders’ approval).  The matter of ‘role-based allowances’ (RBA) was featured and, where they are categorised as fixed remuneration, the need to document the rationale for such categorisation should they fall within certain criteria e.g. where they are limited to cases where the bonus cap would otherwise have been breached.

An EBA follow-up report has been published on the actions taken by Member States to ensure appropriate distinction of the remuneration components – the EBA sent an information request in March to all competent authorities in the EEA requesting responses by 15 May.  It is commented that Lichtenstein did not respond and Iceland, Poland and Norway had not, at that time, fully implemented the CRD 4 remuneration principles.

Although none of the competent authorities have adopted any specific legal/regulatory instruments on the use of allowances, all respondents advised that a review of institutions’ remuneration policies is part of the Supervisory Review and Evaluation Process (SREP).

Perhaps not surprisingly, the UK displayed the most frequent use of role-based allowances; confirmation was provided to the EBA that the UK will ensure compliance with the EBA opinion on the use of allowances for the performance year 2015 onwards.

The follow-up report concludes by advising us that the EBA is currently finalising its guidelines on sound remuneration policies which will include further criteria to classify remuneration components between fixed and variable ones.