As has been widely reported, the European Banking Authority has stated that many role-based allowances should now be treated as variable remuneration, which will result in many banks being in breach of the “bankers’ bonus cap”.
In the past year a number of financial institutions have awarded “role-based allowances” to certain key staff members. The allowances are intended to qualify as fixed remuneration for the purposes of applying the cap on variable remuneration imposed by CRD IV (the so-called “bankers’ bonus cap”). The allowances therefore allow a higher level of variable remuneration to be paid within the cap, but also give institutions more flexibility as to how to structure fixed pay, with the allowances being designed to mitigate the risks posed by high fixed costs.
The European Banking Authority has now announced a clamp-down on the use of role-based allowances, in an EBA Report and an accompanying EBA Opinion published on 15 October 2014. In this briefing we look at:
- What has the EBA done?
- What does the EBA believe constitutes a role-based allowance?
- When can a role-based allowance be fixed remuneration?
- How does the EBA’s view align with the CRD IV text?
- Can allowances still be paid in shares?
- What does this mean for role-based allowances?
- Does the EBA appreciate the impact on fixed costs?
- Do investors have a view?
- Next steps
The EBA Report and the EBA Opinion are available here.
In this briefing our employment team looks behind the headlines, at the opinion published by the EBA.