The European Commission has published Feedback Statement: Summary of responses to the public consultation on the CRD IV remuneration rules. Points of interest in the Feedback Statement include:
- there were divergent views as to whether the maximum ratio rule (MRR) leads to achieving an appropriate balance between the variable and the fixed component of remuneration. Whilst several respondents welcomed the MRR, a number of industry respondents considered the MRR to be too rigid and that other remuneration rules were more key to reducing the level of variable remuneration;
- most respondents agreed with the requirement to defer part of the variable remuneration and positively appreciated its effectiveness in ensuring alignment with long-term performance and deterring excessive risk-taking behaviour. Regarding the percentage of variable remuneration to be deferred, a few respondents supported a higher deferred portion (i.e. 60%) for senior managers and the highest paid material risk takers. Those who assessed the deferral period generally supported the appropriateness of 3 to 5 years, but certain investment firms (e.g. proprietary trading firms) argued in favour of shorter deferral periods, better aligned with the time horizon of their investments and associated risks. Asset managers consider that the rules under the UCITS V Directive and the Alternative Investment Fund Managers Directive contain provisions regarding deferral periods that appropriately account for fund strategy, risk and lifecycle;
- in relation to the requirement to pay out part of the variable remuneration in instruments, most respondents called for a more proportional approach and considered that the administrative burden outweighs the benefits in the case of staff earning low levels of variable remuneration; and
- most respondents agreed with malus and clawback and considered them a good tool to limit excessive risk-taking, to incentivise individuals’ behaviour and to link remuneration with performance.
View Commission feedback statement and summary of responses to consultation on CRD IV remuneration requirements, 28 July 2016