“Allowances” used as part of the fixed remuneration targeted by the European Commission, European co-legislators and the EBA – Newsflash – 19.06.2014

Often perceived by the media as a tool to circumvent the bonus cap, the practice consisting in introducing so-called “position or role-based allowances” is one of the elements underlined in the detailed analysis on remuneration practices across a sample of EU banks published last Friday by the European Banking Authority (EBA). “In general, these allowances, which are paid as fixed amounts in addition to the base salary, are considered by institutions as fixed remuneration. However, these allowances are discretionary, as they are paid to selected members of staff and in most cases only for limited period of time. Under exceptional circumstances, they can also be cancelled”, stated the EBA. As specified in the report, “the European Commission, European co-legislators and the EBA have concerns that these practices do not conform to the requirements specified in the CRD. The European Commission asked the EBA in a letter dated 12 February 2014 to use its powers… (including the power to request all the necessary information from the competent authorities responsible for ensuring that the institutions referred to above comply with CRD IV) to rapidly establish the facts and to determine whether the remuneration schemes being put in place within banks conform with Union law.” The EBA is therefore currently analysing this emerging practice and it is anticipated that guidance criteria will be set to correctly assign these elements to either variable or fixed remuneration. The report also points out that many institutions and business lines do not yet comply with the ratio between variable and fixed remuneration for identified staff which will be permitted in future periods (100% or 200% with shareholder’s approval). To read the full document, please click on the link below