Do any restrictions on remuneration policies apply?
Banking & Finance
Israel has an extensive legislation regarding remuneration policy and restrictions on remuneration of senior officers, in particular with respect to financial and banking corporations.
According to the Companies law, banking corporations, which are publicly traded companies, are required to adopt a remuneration policy for their senior officers. The remuneration policy needs to take into account certain considerations as stipulated in the Companies Law, inter alia, regarding the company's objectives; the company's long term strategy; the company's risk management policy; the company's size and nature of operation, etc. In addition, the remuneration policy needs to include references to certain matters and guidelines with respect to variable terms of employment (cash and equity), retirement grants, the relationship between the senior officer's remuneration and the remuneration of other company's employees, etc. The Companies Law stipulates that the board of directors shall approve the remuneration policy following the recommendation of the remuneration committee and the approval of the shareholders by a special majority (50% of the shareholders who are not the controlling shareholders and who have no personal interest). Under special circumstances, the remuneration committee and the board of directors may approve the remuneration policy despite the objection of the company’s shareholders.The Companies Law also sets provisions regarding the approval of remuneration for senior officers.
A new Remuneration Law, enacted in 2016, includes extensive restrictions regarding remuneration on banking corporation. The Remuneration Law was challenged in the Supreme Court of Israel, which upheld it as constitutional. The Remuneration Law applies to "Financial Corporations" which include various financial institutions such as banking corporation and in certain circumstances their controlling corporations, but excludes foreign banks and other foreign financial bodies. According to the Remuneration Law, remuneration to senior officers or employees of a Financial Corporation paid to them in connection with their employment both by the Financial Corporation and by its affiliates, for which the projected expense calculated as of the date of the approval of the remuneration in accordance with GAAP, is expected to exceed NIS 2.5 million per year, may not be approved unless the ratio between (i) such expected expense (on a full time basis), and (ii) the expense for the lowest remuneration paid (on a full time basis) by the Financial Corporation to its employee, directly or indirectly (including to a person employed by a manpower contractor or a services contractor), during the year prior to the approval (the "Employee Ratio"), is lower than 35. This is an absolute cap on the remuneration (with no exemption).
Subject to compliance with the Employee Ratio, the approval of remuneration to senior officers or employees of a Financial Corporation, exceeding NIS 2.5 million per year, shall require a strict approval mechanism. Engagement with respect to Remuneration, which was not approved in accordance with the Remuneration Law, shall not be valid for both the Financial Corporation and the senior officer or employee. In addition, according to the Remuneration law, in general, any expense regarding the remuneration of employee of a Financial Corporation exceeding the sum of NIS 2.5 Million per year shall not recognized as remuneration expanses for tax purposes.
PMB 301A, issued by BoI, applies to banking corporations and to their subsidiaries. The 301A Directive is based mainly on the FSF/FSB documents, on the "Principals for Sound Compensation Practices and Implementation Standards, Basel Committee recommendation (January 2010), Compensation Principles and Standards Assessment Methodology" and the European Directive 2013/36/EU. According to the 301A Directive, the banking corporation's board of directors is required to determine, at least once every three years, a remuneration policy for all of its employees, as well as principles for the remuneration policy in its subsidiaries. The remuneration policy shall apply to all employees, focusing on Key Employees. The 301A Directive also sets restrictions, mainly regarding the remuneration for Key Employees. Such restrictions includes, among others, that the maximum variable remuneration shall not exceed 100% of the fixed remuneration (subject to extraordinary circumstances); claw back provisions ;deferral arrangements attributed to a Key Employee granted for a calendar year; restrictions regarding payment of variable component for directors etc.
Yes, restrictions do apply. Such restrictions amongst others cover the decision making process with respect to remuneration, the percentage between basic remuneration and variable remuneration (bonus) and the limitations regarding bonuses.
Credit institutions with a market share of at least 5 % are required to establish a remuneration committee that shall be responsible for overseeing the remuneration of the senior officers and for the preparation of decisions regarding remuneration.
Basic remuneration and variable remuneration (bonus) shall be handled separately. The variable remuneration may exceed 100 % of the basic remuneration only:
- if proposed for the credit institution’s general meeting by a detailed explanation supporting the higher bonus based on performance and if so authorized by the general meeting;
- provided that in the general meeting members of the credit institution act:
(i) by a majority of at least 66 % provided that at least 50 % of the shares or equivalent ownership rights are represented, or
(ii) by a majority of 75 % of the ownership rights represented; and
- the credit institution notifies the HNB before the proposal is made to the general meeting, and also on the actual resolution.
Variable remuneration shall never exceed 200 % of the basic remuneration.
In addition to the above the following restrictions on bonuses apply:
- a credit institution shall not guarantee bonus to any of its employees also bonus shall not be a part of prospective remuneration plans;
- bonus can be paid or vests upon the senior executive or other staff member only if:
a) it is sustainable according to the financial situation of the credit institution, and
b) it is justified on the basis of the performance of the credit institution, the business unit and the senior executive or other staff member concerned and
- payment of variable remuneration must not limit the ability of the credit institution to strengthen its capital base to the extent necessary and must not result in non-compliance with the provisions of the Hungarian Banking Act, prudential requirements and the provisions of Regulation 575/2013/EU.
Certain restrictions to remuneration policies apply to the banks. The law obliges the bank to ensure such remuneration policy and practice for its officials or employees whose professional activities significantly affect the risk profile of the bank, which corresponds to cautious and effective risk management and facilitates it, but does not facilitate undertaking of risks which are above the allowed level of undertaking of risks determined by the bank.
Moreover, for the officials or employees of the bank whose professional activities significantly affect the risk profile of the bank, the bank shall not determine the variable part of the remuneration to be such that exceeds the fixed part of the remuneration determined for the respective official or employee in the reporting year, except under certain exhaustively defined conditions.
Furthermore, the FCMC has developed binding regulations on the basic principles of remuneration policy that the banks are obliged to follow (FCMC Regulations No. 126 of 2 July 2014).
Lithuania applies restrictions on remuneration policies without major deviations from EU Guidelines on sound remuneration policies under Articles 74(3) and 75(2) of Directive 2013/36/EU and disclosures under Article 450 of Regulation (EU) No. 575/2013.
There are no such restrictions; however, a bank must prepare and implement a remuneration policy for those categories of staff whose professional activities have a material impact on its risk profile. Such remuneration policy must be disclosed to the Polish FSA in accordance with Art. 450 of the CRR and will be further disclosed to the EBA.
The remuneration policy must meet the criteria specified in the Resolution of the Polish Minister of Development and Finance dated 6 March 2017.
The European Capital Requirements Directive (CRD IV) was implemented into national legislation by Regulation no 5/2013 of the NBR on the prudential requirements for the credit institutions and the Romanian Banking Law. In addition, the NBR has issued a series of orders and instructions in view of transposing the provisions of the European Banking Authority's guides.
The credit institutions must determine the remuneration policies and practices in accordance with a detailed list of principles set under Regulation no 5/2013. For example, the fixed and variable components of total remuneration should be appropriately balanced and the fixed component should represent a sufficiently high proportion of the total remuneration in order to allow the operation of a fully flexible policy, on variable remuneration components. The variable component of the total remuneration should not exceed 100% of the fixed component of the total remuneration.
Moreover, the total variable remuneration shall generally be considerably contracted where subdued or negative financial performance of the institution occurs, taking into account both current remuneration and reductions in payouts of amounts previously earned, including through malus or clawback arrangements. Up to 100 % of the total variable remuneration shall be subject to malus or clawback arrangements. The specific criteria for the application of malus and clawback covers, in particular, situations where staff members: (i) participated in or were responsible for conduct that resulted in significant losses to the institution; or (ii) failed to meet appropriate standards of good reputation and adequate experience.
The BR Act generally mandates that the remuneration of the management personnel of a bank be governed by the board of the bank but gives the RBI the power to oversee and approve such remuneration. It further caps the payment of any brokerage, commission or remuneration (of any nature) to its shareholders with respect to their shares at two percent of the value of such shares.
More specifically, the remuneration of the management in banking entities is governed by the Guidelines on Compensation of Whole Time Directors/ Chief Executive officers/ Risk takers and Control Function staff etc. (Compensation Guidelines) issued in 2012 which has adopted the Principles for Sound Compensation Practices as issued by the Financial Stability Board in 2009.
In practice, these Compensation Guidelines require a bank to: (i) formulate a compensation policy covering all its employees; (ii) operate under the guidance of a board and remuneration committee; (iii) have a standard fixed pay system; and (iv) require the approval of the RBI for change in remuneration of any key managerial personnel (including the managing director, whole time director/ chairman etc.), with the aim to promote effective governance of compensation, effective alignment of compensation with prudential risk taking and effective supervisory oversight and engagement of stakeholders.
In case of foreign banks operating under a banking license in India, the Compensation Guidelines, in addition to the above, also require the foreign bank (through its head office) to submit to the RBI, on an annual basis a declaration stating that their compensation policies are in line with the guidelines and principles prescribed in India.
The FSA’s Supervisory Guidelines require a bank to establish an independent committee to set its remuneration policy, assess whether the policy harms its financial soundness and capital adequacy, coordinate with the bank’s risk control divisions and monitor the remuneration. The guidelines also require the bank to determine the remuneration of its risk control and compliance divisions independently from other divisions, ensure that any performance-based bonus does not harm its financial soundness, and remedy any remuneration structure that is harmful to risk control.
Additionally, the bank must make available to the public certain matters relating to its remuneration policy.
As part of the internal governance framework, a licensed credit institution should have in place a Board approved structure regarding its policies for the remuneration and compensation of its management and staff members. The absence of a coherent and adequate remuneration policy generates potential risks for a licensed credit institution that need to be adequately analysed and contained.
When establishing and applying the total remuneration policies, credit institutions shall comply with the principles and regulatory technical standards promulgated by CEBS (as it then was) and the EBA, in a manner and to the extent that is appropriate to their size, internal organisation and the nature, scope and complexity of their activities.
The remuneration policy, taking into account national criteria on wage setting, makes a clear distinction between criteria for setting: (a) basic fixed remuneration, which should primarily reflect relevant professional experience and organisational responsibility as set out in an employee’s job description as part of the terms of employment; and (b) variable remuneration which should reflect a sustainable and risk adjusted performance as well as performance in excess of that required to fulfil the employee’s job description as part of the terms of employment. For variable elements of remuneration, the following principles and restrictions shall apply:
- where remuneration is performance related, the total amount of remuneration is based on a combination of the assessment of the performance of the individual and of the business unit concerned and of the overall results of the credit institution and when assessing individual performance, financial and non-financial criteria are taken into account;
- the assessment of the performance is set in a multi-year framework in order to ensure that the assessment process is based on longer-term performance and that the actual payment of performance-based components of remuneration is spread over a period which takes account of the underlying business cycle of the credit institution and its business risks;
- the total variable remuneration does not limit the ability of the credit institution to strengthen its capital base;
- guaranteed variable remuneration is not consistent with sound risk management or the pay-for-performance principle and shall not be a part of prospective remuneration plans;
- guaranteed variable remuneration is exceptional, occurs only when hiring new staff and where the credit institution has a sound and strong capital base and is limited to the first year of employment;
- fixed and variable components of total remuneration are appropriately balanced and the fixed component represents a sufficiently high proportion of the total remuneration to allow the operation of a fully flexible policy, on variable remuneration components, including the possibility to pay no variable remuneration component;
- institutions shall set the appropriate ratios between the fixed and the variable component of the total remuneration, whereby the following principles shall apply: (a) the variable component shall not exceed 100% of the fixed component of the total remuneration for each individual; (b) shareholders of the credit institution may approve a higher maximum level of the ratio between the fixed and variable components of remuneration provided the overall level of the variable component shall not exceed 200% of the fixed component of the total remuneration for each individual; (c) credit institutions may apply the discount rate referred to in the second subparagraph of this point to a maximum of 25% of total variable remuneration provided it is paid in instruments that are deferred for a period of not less than five years.
- payments related to the early termination of a contract reflect performance achieved over time and do not reward failure or misconduct;
- remuneration packages relating to compensation or buy out from contracts in previous employment must align with the long-term interests of the credit institution including retention, deferral, performance and clawback arrangements;
- the measurement of performance used to calculate variable remuneration components or pools of variable remuneration components includes an adjustment for all types of current and future risks and takes into account the cost of the capital and the liquidity required;
- the allocation of the variable remuneration components within the credit institution shall also take into account all types of current and future risks;
- a substantial portion, and in any event at least 50%, of any variable remuneration shall consist of an appropriate balance of the following: (a) shares or equivalent ownership interests, subject to the legal structure of the credit institution concerned or share-linked instruments or equivalent non-cash instruments, in case of a non-listed credit institution, and (b) where possible, other instruments within the meaning of Article 52 or 63 of the CRR or other instruments which can be fully converted to Common Equity Tier 1 instruments or written down, that in each case adequately reflect the credit quality of the credit institution as a going concern and are appropriate to be used for the purposes of variable remuneration;
- a substantial portion, and in any event at least 40%, of the variable remuneration component is deferred over a period which is not less than three to five years and is correctly aligned with the nature of the business, its risks and the activities of the member of staff in question. Remuneration payable under deferral arrangements shall vest no faster than on a pro-rata basis. In the case of a variable remuneration component of a particularly high amount, at least 60% of the amount shall be deferred. The length of the deferral period shall be established in accordance with the business cycle, the nature of the business, its risks and the activities of the member of staff in question.
- the variable remuneration, including the deferred portion, is paid or vests only if it is sustainable according to the financial situation of the credit institution as a whole, and justified on the basis of the performance of the credit institution, the business unit and the individual concerned;
- up to 100% of the total variable remuneration shall be subject to malus or clawback arrangements. Credit institutions shall set specific criteria for the application of malus and clawback. Such criteria shall in particular cover situations where the staff member: (a) participated in or was responsible for conduct which resulted in significant losses to the credit institution; and (b) failed to meet appropriate standards of fitness and propriety;
- the pension policy is in line with the business strategy, objectives, values and long-term interests of the credit institution;
- staff members are required to undertake not to use personal hedging strategies or remuneration- and liability-related insurance to undermine the risk alignment effects embedded in their remuneration arrangements;
- variable remuneration is not paid through vehicles or methods that facilitate the non-compliance with the Banking Act and any regulations and Banking Rules issued thereunder transposing the CRD, or with the CRR.
In line with the provisions of section 2.7 of the CBN Code, banks in Nigeria are required to align executive and board remuneration with the long term interests of the bank and its shareholders. The levels of remuneration should be sufficient to attract, retain and motivate executive officers of the bank and this shall be balanced against the bank’s interest in not paying excessive remuneration.
This is however subject to the following restrictions:
a. where remuneration is linked to performance, it should be designed in such a way as to prevent excessive risk taking;
b. executive directors shall not receive sitting allowances and directors’ fees.
c. non-executive directors’ remuneration shall be limited to directors’ fees, sitting allowances for board and board committee meetings and reimbursable travel and hotel expenses. They are not to receive benefits, salaries, etc, whether in cash or in kind, other than those mentioned above.
d. where stock options are adopted as part of executive remuneration or compensation, the board is to ensure that they are not priced at a discount except with the authorization of the relevant regulatory agencies.
e. share options should be tied to performance and subject to the approval of the shareholders at the annual general meeting.
Yes, restrictions on remuneration polices apply. Norwegian rules in this respect are based on the CRD IV-rules. Specifically, variable remuneration may not account for more than 100% of the base salary; a limit that can be raised to 200% of the base salary if certain conditions are met with respect to approval procedure and information to the NFSA. The Norwegian remuneration rules are applicable regardless of the size, nature, scope or complexity of the institution.
Portuguese law requires that credit institutions shall have in place remuneration policies for all their staff:
a) Members of the management and supervisory bodies;
c) Risk takers;
d) Staff engaged in control functions;
e) Employees receiving total remuneration that takes them into the same remuneration bracket as the above categories, whose professional activities have a material impact on the institution’s risk profile.
The implementation of the remuneration policy shall be subject to central and independent internal review by the remuneration committees (if existing), by the non-executive members of the management body or the members of the supervisory body, at least on an annual basis. Remuneration committees are mandatory in credit institutions that are significant in terms of their size, internal organisation and the nature, scope and complexity of their activities.
The remuneration policy of credit institutions shall comply with five principles in a manner and to the extent that is appropriate to their size, internal organisation and the nature, scope and complexity of their activities:
a) to promote sound and effective risk management and not to encourage risk-taking that exceeds the level of tolerated risk of the institution;
b) to be in line with the business strategy, objectives, values and long-term interests of the institution, and to incorporate measures to avoid conflicts of interest;
c) staff engaged in control functions to be independent from the business units they oversee, have appropriate authority, and be remunerated in accordance with the achievement of the objectives linked to their functions, independent from the performance of the business areas they control;
d) to establish that the remuneration of the senior officers in the risk management and compliance functions is directly overseen by the remuneration committee or, if such a committee has not been established, by the management body in its supervisory function;
e) to make a clear distinction between criteria for setting basic fixed remuneration, which should primarily reflect relevant professional experience and organisational responsibility as set out in an employee's job description as part of the terms of employment, and variable remuneration, which should be based on sustainable and risk-adjusted performance as well as fulfillment of tasks beyond what is required as part of the terms of employment.
Therefore, the remuneration practices and policies of credit institutions must be flexible and they should reflect the financial situation of the institution.
The rules on remuneration practices and policies shall not be waived, particularly through hedging mechanisms.
Credit institutions shall set the appropriate ratios between the fixed and the variable component of the total remuneration of their staff, where the fixed component represents a sufficiently high proportion of the total remuneration to allow the operation of a fully flexible policy on variable remuneration components. This may include the possibility to pay no variable remuneration component. As a general rule, the variable remuneration component shall not exceed the total amount of the fixed component for each staff member.
In the case of credit institutions that benefit from extraordinary public financial support, the remuneration policy shall be subject to the following principles during the intervention period:
a) no variable remuneration is paid to members of the management body of the institution unless there are serious and objective reasons that would justify such payment;
b) remuneration shall be restructured in a manner aligned with sound risk management and long-term growth of the credit institution, including establishing limits to the remuneration of the members of the management body;
c) variable remuneration is strictly limited as a percentage of net revenue where it is inconsistent with the maintenance of a sound capital base and timely exit from extraordinary public financial support
Credit institutions have the duty to inform Banco de Portugal of the number of staff members who receive the remuneration of EUR 1,000,000.00 or more per financial year, including their job responsibilities, the business area involved and the main elements of fixed and variable remuneration and contributions to discretionary pension benefits.
The remuneration policy shall be publicly available at the credit institution's website.
A compensation and remuneration committee must be established by the Board of Directors of a bank and comprised of, wherever appropriate, majority of independent members. It may also include external advisors for consultation. Its members should have sufficient knowledge, skills, and experience required for making independent and objective policies and decisions on compensation and remuneration practices.
The board shall approve and follow up implementation of remuneration policies, as recommended by the compensation and remuneration committee. It should also oversee any update or modification of the compensation policies, and the related recommendation by the committee.
Approved remuneration policy of a bank should at a minimum include the following:
- Remuneration system should be consistent with risk profile and the bank’s overall performance, including indicators of profitability, liquidity, capital adequacy and operational performance. Employees’ compensations must be consistent with their performance and efforts to fulfill their responsibilities and the bank’s overall performance.
- Remuneration system should include entire bank’s administrative levels, starting with the board members, senior managers, up to employees to enhance the efficiency of risk management and compensation policy.
- All types of risks should be considered while deciding compensation for the bank’s group as a whole so that total income or profit should not be the only performance parameter.
- The compensation policy should be based on objective performance assessment system linked to the risk management framework and the application of the internal controls and regulatory requirements to evaluate and measure staff performance at all levels.
- The remuneration of members of board and executive management should be based on their performance and in consistency with the bank long-term performance not only the over current year period.
- Compensation payout schedule shall be sensitive to risk’s time frame. As profits and losses of different activities of a bank are realized over different periods of time, the variable compensation payments should be deferred accordingly and not to be finalized over short periods where risks are realized over long periods.
- Compensation outcomes (cash, equity and other forms) must be consistent with the related risk and rules that should regulate remuneration payments as per employees professional level.
- Banks shall disclose all information about their compensation practices in a clear and comprehensive way in the bank’s financial statements. Members of board compensation payments must be disclosed.
- Any large payouts should be described in details if they are part of compensation.
Qatar Central Bank maintains the right, when necessary, to restrain or limit the aggregate variable remuneration to a percentage of the net profits, or as it may deem appropriate, if the bank does not comply with the related supervisory requirement of capital adequacy or proven to carry out incorrect banking practices.
are no contradictions between the amended items and the Articles of QCB Law.
Swiss regulatory compensation rules are contained in a FINMA-Circular 2010/1 "Minimum standards for remuneration schemes of financial institutions" (Compensation Circular). The scope of the Compensation Circular generally applies to the remuneration of all persons (institution-wide) who are employed by firms that are subject to Swiss financial market supervision (each a Relevant Firm) or by an affiliate of such Relevant Firm and who are remunerated for work performed in respect of the Relevant Firm, including persons entrusted with the executive management (Senior Management (Geschäftsleitung)) and persons responsible for the overall direction, oversight and control (Board of Directors).
The Compensation Circular is mandatory for Relevant Firms that are required to maintain minimum equity capital of CHF 10 billion (stand-alone or consolidated). Where this threshold is not met, adherence to the Compensation Circular merely is recommended as best practice guidelines. The Compensation Circular must be adhered to (or be considered as best practice, as the case may be) by the Relevant Firms' domestic and foreign subsidiaries and branches which are mandatorily included in consolidation.
The Guide on Good Remuneration Practices at Banks (the “Remuneration Guide”) sets forth criteria for the establishment of remuneration policies to ensure efficient risk management.
Remunerations for non-executive members of board of directors and remuneration committee members shall be fixed to avoid any conflicts of interest. Any variable remunerations; such as performance based bonuses and premiums, to executive members of the board of directors and senior management should be based on objective criteria and not affect the bank’s corporate values negatively, as per the CG Regulation.
Payments to employees of internal systems units should be mainly fixed and determined independently of the performance of the operational units audited, supervised or controlled by the same.
Fixed and variable components of total remunerations granted to the specialized employees having a material impact on the bank’s risk profile shall be determined based on the performance of (i) the respective employee; (ii) such employee’s unit and (iii) the bank, considering negative and positive consequences of the assumed risk. Moreover, the percentage of the fixed components in the total remunerations for specialized employees shall be high enough, enabling the bank to refrain from paying the variable component, where necessary. No performance-based payment amount should be guaranteed in advance (other than sign-on bonuses).
Systemically important banks shall also comply with the following requirements on remuneration practices with respect to their specialized employees: (i) at least 40% of the variable remuneration shall be paid by spreading the same to periods; provided that the deferring period is not less than three years, (ii) at least 50% of the variable remunerations shall be paid with non-cash instruments listed in the Remuneration Guide; (iii) an appropriate retention time during which the specialized employees cannot dispose of the said non-cash instruments shall be determined; and (iv) variable remunerations shall be made available subject to cancellation and redemption agreements. Additionally, systematically important banks are required to make annual public disclosures on certain qualitative and quantitative details regarding their respective remuneration policies. Banks other than systemically important banks shall comply with the above-mentioned remuneration restrictions as well as the disclosure requirements; to the extent possible based on their own practices, risk structures and strategies.
Requirements for remuneration policies and practice of credit institutions licensed in Austria are set out in the Banking Act (Articles 39, 39b and Annex to Article 39b Banking Act). This set of rules is refined by guidelines governing remuneration policies and practices. The FMA shall take these into account according to the European convergence in respect of supervisory tools and supervisory procedures. In this respect, the guidelines and recommendations (and other measures) that are issued by the European Banking Authority (“EBA”) must be applied. Therefore, Annex to sec 39b BWG, the circular letter issued by the FMA in December 2012 (“Grundsätze der Vergütungspolitik und –praktiken; Rundschreiben der FMA zu §§ 39 Abs. 2, 39b und 39c BWG”) and the Guidelines from the EBA considering remuneration policies e.g., Guidelines on sound remuneration policies under Articles 74(3) and 75(2) of Directive 2013/36/EU and disclosures under Article 450 of Regulation (EU) No 575/2013 (EBA/GL/2015/22) contain the main rules for restrictions on remuneration.
Ordinance No.4 of the BNB of 21 December 2010 on Requirements to Remunerations in Banks transposes provisions of CRD IV Directive. It requires that each bank has its internal policy on all forms of remuneration of its senior managers, risk takers, staff performing control functions, and any employees whose remuneration is in the same remuneration brackets and whose professional activity has a material impact on the bank’s risk profile.
Their remuneration should have two components: (i) fixed remuneration depending on the professional experience and responsibilities; and (ii) variable remuneration depending on the sustainable, effective and risk adjusted performance. Generally, the amount of the variant component may not exceed the amount of the fixed component of the total remuneration. As an exception, the GMS by a special qualified majority may decide on a variable component that is not higher than the double amount of the fixed component. Such decision is subject to preliminary notification to BNB, which further notifies the European Banking Authority (EBA).
There are special rules to the limits, structure, and deferral of variable components of remunerations.
It is mandatory for banks with one tier management system to set up remuneration committees while the rest are only encouraged to.
COMF stablishes that the Monetary and Financial Political and Regulation Board is entitled to regulate the salary and any other economic benefit, compensations and social benefits of the administrators of the financial activities companies, as well as the insurances and securities companies, based in the profitability, the risk, the assets and the capital of the entity in comparison with the rest of the market.
For financial entities with assets higher than USD 750 million (Major), the difference of salaries between the highest administrator or director in comparison with the latest position in the same line, cannot be higher than 40 times. For financial entities which assets are lower than USD 750 million (Medium and Small), the difference of salaries between the highest administrator or director in comparison with the latest position in the same line, cannot be higher than 26 times.
CRDIV requires banks to establish remuneration policies at group, parent company and subsidiary levels. A bank’s remuneration policy for all staff should be consistent with the objectives of the institution’s business and risk strategy, corporate culture and values, long-term interests of the institution and measures used to avoid conflicts of interest. Remuneration polcies should discourage excessive risk taking and must align with a bank’s overall risk appetite while taking into account the long-term interests of shareholders. Under CGR, a bank’s board is responsible for ensuring a remuneration policy does not promote excessive risk taking.
CRDIV imposes remuneration restrictions on staff of a bank that are capable of having a material impact on the bank’s risk profile. This includes limiting variable remuneration to 100% of fixed remuneration, or 200% if shareholders approve. The EU Capital Requirements Regulations (575/2013/EU) (CRR) (which has direct effect) (Article 450) sets out disclosure and transparency requirements to be complied with by banks in respect of such staff and individuals who earn more than EUR1 million per year.
The European Banking Authority (EBA) has issued guidelines on sound remuneration policies under CRDIV and disclosures under CRR (EBA Remuneration Guidelines). The CBI’s policy statement on approach to proportionality relating to the pay-out process applicable to variable remuneration (relevant to less significant institutons) provides that where credit institutions use the principle of proportionality, the CBI’s assessment of compliance with the EBA Remuneration Guidelines will be guided by the European Commission's thresholds in Article 94(3) of its proposal for amendments to CRDIV.
Banking institutions must adopt remuneration policies and practices that enable and promote sound and effective risk management.
In that way, they must implement a global remuneration policy regarding the persons effectively running the business, risk takers, staff engaged in control functions and any employee receiving total remunera-tion that takes them into the same remuneration bracket as senior management and risk takers, the pro-fessional activities of whom have a significant incidence on the risk profile of the bank or the group of which it is a part.
Rules on remuneration, both at group and individual level, were introduced by the Banking Act, which essentially implement the provisions of the European capital requirements directive (CRD IV). However, a stricter cap on remuneration for identified staff was introduced which limits their variable remuneration to the highest amount of 50% of their fixed remuneration or EUR 50,000, provided that this amount is not higher than their fixed remuneration. Notwithstanding European legislation, Belgium also established strict, more far reaching rules for credit institutions that have received exceptional government intervention and termination payments.
The bases and principles of determining the remuneration and other office related benefits of management board members and members of staff of the credit institution, including severance payments, pension benefits and other benefits need to be clear, transparent and in compliance with prudent and efficient risk management principles. Remunation principles have to take into consideration the business strategy and values of the credit institution in view of the economic performance of the credit institutions and the legitimate interests of the depositors and other clients.
Remuneration principles have to include measures to avoid a conflict of interests, thereby the remuneration of a member of the management board or employee responsible for the assessment of the solvency of a consumer in a credit institution may not depend only on the number of the approved credit applications, proportion or the number of the credit agreements entered into.
If a credit institution provides consulting services upon the granting or intermediating of a loan, the remuneration principles may not restrict the possibilities of an employee related to consulting service to act in the interests of the consumer and the remuneration of the employee may not be mainly based on the number of credit agreements entered into or the volume of the action plan for provision of service.
Yes. In principle, the remuneration policies of credit institutions must comply with the principles of prudent and effective risk management; furthermore, such policies must be aligned with the business strategies, values and objectives of such credit institutions.
Many on the statutory restrictions on remuneration policies focus on the distinction between fixed and variable compensation. As a matter of principle, the variable component may not exceed 100% of the fixed component of such compensation. The ratio in question, may be increased to 200%, provided that such increase is approved by virtue of a special resolution of the general meeting of the credit institution.
Remuneration committees are responsible to determine the applicable compensation policies, especially those applying in the case of the more senior officers of the credit institution, having overall regard to risk, capital liquidity and expected income. In addition, remuneration policies are controlled by the internal audit function of the credit institution. It is noted that all officers participating in the remuneration review process must be independent, from a corporate governance perspective.
The remuneration practice of Greek credit institution is disclosed to the BoG. Such information is also communicated to the European Banking Authority ('EBA') which maintains an overall assessment of remuneration trends and practices in the EU.
Yes. The German Remuneration Regulation for Institutions (Institutsvergütungsverordnung – “InstitutsVergV”) sets forth the statutory requirements for remuneration and is drafted in a way to reflect the European Banking Authority’s guidelines on sound remuneration policies. The main features are:
- All remuneration must be classified as fixed or variable. A third category of remuneration is not permitted.
- Allowances for staff working abroad or in a different position may qualify as fixed remuneration subject to certain conditions (including for the purposes of calculating the applicable bonus cap) and are therefore not subject to the risk adjustment provisions of the InstitutsVergV.
- As an additional ex post risk adjustment instrument, significant institutions must have the following instruments for the purposes of complying with malus criteria:
- The ability to reduce retained bonus components.
- In addition, in cases of serious personal misconduct, the ability for a defined period to demand repayment of variable remuneration components already paid (clawback).
- Explicit rules govern the payment of a portion of the variable remuneration in instruments eligible for bail-in – namely to link part of the remuneration paid to the subsequent performance of the institution.
- Within the prudential scope of consolidation, the provisions of the InstitutsVergV also apply to the remuneration schemes of those employees whose professional activities materially affect the group's risk profile (group risk bearers).
- The principle of proportionality continues to be implemented at institution and employee levels in the form of thresholds (total assets and level of variable annual remuneration, respectively). Where those thresholds are reached or exceeded, the special requirements for the risk adjustment of the variable remuneration of risk bearers must be applied.
The Dodd-Frank Act prohibits incentive-based payment arrangements that encourage inappropriate risks by certain financial institutions. The US federal banking agencies have proposed a rule to implement these limitations, which has not yet been finalized. There are also restrictions, in connection with failed financial institutions, on the operation of “golden parachute” plans, in which the former senior management benefits from certain kinds of financial arrangements established by the failed institution. Other limitations on compensation apply in certain other contexts as well, depending on the bank charter and the activities or person in question.
There are no restrictions on remuneration policies applicable under Colombian law.
The Finnish Act on Credit Institutions includes provisions on remuneration and sets out the general requirements for remuneration policies. A remuneration policy must be in line with the business strategy, objectives, values and long-term interests of the institution and its consolidation group. A remuneration policy must also be in line with the risk management of the credit institution and its consolidation group, and must not encourage risk-taking that exceeds the level of tolerated risk of the credit institution.
The Act on Credit Institutions includes certain further provisions relating to the separation of fixed and variable compensations. Under MiFID II, credit institutions that provide investment services to clients must ensure that staff is not remunerated and their performance is not assessed in a way that conflicts with the duty to act in the best interests of the clients. EBA has further issued regulatory technical standards, guidelines and recommendations with respect to remuneration policies for staff members of credit institutions. The FFSA supervises the development of remuneration policies and market practice, and forwards information to the EBA in such matters.
The management is responsible for the supervision of the remuneration policies.
G-SIIs and other systemically important institutions (O-SIIs) must establish a remuneration committee that assists the board of directors in managing the remuneration policies and assisting with guidance decisions.
Yes. The PRA has issued a supervisory statement setting out the expectations for firms in relation to the following:
- material risk takers (MRTs);
- application of clawback to variable remuneration;
- governing body/remuneration committees;
- risk management and control functions;
- remuneration and capital;
- risk adjustment (including long-term incentive plans);
- personal investment strategies;
- remuneration structures (including guaranteed variable remuneration, buy-outs and retention awards);
- deferral; and
- breaches of the remuneration rules.