23 October 2013

EBA consults on draft Guidelines on the discount rate for variable remuneration

EBA launched a consultation paper on draft Guidelines setting out the calculation of the discount rate for variable remuneration and clarifying how it should be applied. The consultation runs until 18 January, 2014.

The variable and fixed component of remuneration for identified staff is capped at 100 per cent or at a maximum of 200 per cent, subject to shareholders' approval. When calculating the ratio between variable and fixed component, Member States may allow institutions to apply a discount rate of 25 per cent (or less subject to national laws) of the variable remuneration, provided the latter is paid in instruments that are deferred over a period of not less than five years.

The discount rate consists of the national annual inflation rate, the average interest rate of EU government bonds, an incentive factor linked to the use of long-deferred instruments and an incentive factor linked to the use of additional retention periods. These last two factors increase with the length of the actual deferral and retention periods.

The discount rate is calculated taking into account the length of the period between the award and the vesting of variable remuneration.

Comments can be sent to the EBA by 18 January, 2014. A public hearing will take place at the EBA premises on 29 November, 2013 from 10:00 to 12:00 UK time. The EBA is expected to finalise and publish the Guidelines by 31 March, 2014.

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