Remuneration in the Financial Sector … May News

Remuneration in the Financial Sector … May News


Keeping up with changes to pay regulation in the financial sector is an on-going task, with regulators issuing what seems to be a never-ending series of new consultations and proposals.

As we reported last time, in April the EU Parliament voted in favour of limiting bankers’ bonuses to 100% of base salary in most cases. Banks will be able to pay up to 200% of base salary as bonus, but only with prior shareholder approval.

Next week we expect further details to emerge with the EU ready to publish its next paper setting out further details as to the changing remuneration landscape.

The word on the street is that the EU’s latest proposals will include the following:

  • For those businesses already caught within the FSA’s Remuneration Code (now regulated by the FCA), the definition of Code Staff is likely to be tightened up because it is not catching enough people, and regulators think that businesses are using the current internal flexibility in the Code to their unfair advantage.
  • The likely proposal will be to apply three criteria to define Code Staff, which will impact far more employees than currently:
  • senior managers and key risk takers;
  • other risk takers; and
  • any employees earning €500,000+ in total compensation/ who are in the top 0.3% of staff in terms of pay or earn the same as other Code Staff/whose variable pay is €75,000+ and is 75%+ of salary.
  • The proposed bonus cap will apply on a bonus-by-bonus basis i.e. a bonus of more than 100% base salary will always require shareholder approval, even if on average the individual’s bonus awards are overall less than 100% of base salary.
  • As we anticipated previously, level 3 firms should remain excluded from the cap.
  • Given that the FCA and UK government oppose the cap, the FCA may well be more willing to accept ‘creative’ structures to get around the cap. However, the onus on will very much be on firms to decide on the arrangements they want and run with them until told not to.
  • The proposed AIMFD Remuneration Code is likely to be amended to be brought into line so that it also contains a bonus cap.

Undoubtedly, details will emerge next week and into June – stay tuned for further updates!