13 December 2013

EBA agrees on definition of identified staff for remuneration purposes

The EBA agreed on criteria to identify categories of staff whose professional activities have a material impact on an institution's risk profile. These identified staff will be subject to provisions related in particular to the payment of variable remuneration.

The EBA draft Regulatory Technical Standards (RTS) look at remuneration packages for identified staff categories and aim at ensuring that appropriate incentives for long-term oriented and prudent risk taking are provided. This will ultimately contribute to supporting financial stability across the EU, as inappropriate incentives for management and employees - for instance, with disproportionate rewards on the upside and insufficient penalties on the downside- have often led to short-term oriented and excessively risky strategies.

These draft RTS propose a methodology for identifying staff that is consistent across the EU. They are based on a combination of qualitative and quantitative criteria and will have to be applied by all institutions subject to the Capital Requirements Directive (CRD).

While these common criteria ensure consistency and a level playing field across the EU single market, they may not cover all specific aspects of some institutions' risk profiles. The CRD requires that all staff having a material impact on the risk profile of an institution be identified. In line with its mandate, the EBA has focused on quantitative and qualitative criteria, whereas an internal self-assessment will still have to be carried out by each institution to ensure full compliance with CRD requirements.

As a general principle, staff shall be identified as having a material impact on the institution's risk profile if they meet one or more of the following criteria:

• Standard qualitative criteria: related to the role and decision-making power of staff members (e.g. staff is a member of a management body, is a senior manager, has the authority to commit significantly to credit risk exposures, etc.)
• Standard quantitative criteria: related to the level of total gross remuneration in absolute or in relative terms. In this respect, staff should be identified if:
  • their total remuneration exceeds, in absolute terms, €500,000 per year, or
  • they are included in the 0.3 per cent of staff with the highest remuneration in the institution, or
  • their remuneration is equal or greater than the lowest total remuneration of senior management and other risk takers.
• Exclusion criteria: the draft RTS allow in justified cases, under additional conditions and subject to supervisory review, the exclusion of staff identified only according to standard quantitative criteria. In this respect, for staff with an awarded total remuneration of €500,000 or more, institutions need to notify exclusions to the competent authority. For staff with a total awarded remuneration of €750,000 or for staff included in the 0.3 per cent of the highest earners, a prior approval of exclusions is required. For staff with a total awarded remuneration of €1,000,000 or more competent authorities need to inform the EBA about such intended exclusions before the decision is made. Institutions will have to submit the notification or application and demonstrate that the excluded staff on the basis of the business unit they are working in, as well as of their duties and activities have indeed no material impact on the institution's risk profile.

These draft RTS will be submitted to the European Commission for adoption and published on the EBA website on 16 December 2013. They will enter into force after their publication in the Official Journal of the European Union. The EBA will review the development of identification practices and the exclusion of staff in the course of 2015.

Full news

Draft final RTS

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Most of the bankers that will be hit by the cap are based in London, and Britain is challenging the cap in the EU's highest court. Even before the ink of Friday's final version of the rule is dry, banks are already taking steps to circumvent it, such as by bumping up fixed pay or looking at payments of extra "allowances" on top of basic salaries.

Further reporting © Reuters

See also: Banking executives’ remuneration in the UK - Commons Library Standard Note

© EBA