Page 43 - EBA 2015.1815 Annual report 2014 web 2

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2 0 1 4 a n n u a l r e p o r t
Contributing to a sounder remuneration
The legislative changes introduced by the CRD
to strengthen remuneration practices in in-
stitutions across the EU became effective on
1 January 2014. The EBA developed a set of
draft RTS defining appropriate qualitative and
quantitative criteria to identify categories of
staff whose professional activities have a ma-
terial impact on an institution’s risk profile,
which also came into force in 2014. This was
followed by RTS on classes of instruments
appropriate to be used for variable remunera-
tion, which were submitted to the EC in Febru-
ary 2014. Guidelines on the applicable notional
discount rate for variable remuneration were
delivered in March 2014.
Report on identified staff
The RTS on identified staff is of critical impor-
tance for the correct application of the CRD
remuneration provisions as it defines criteria
to identify staff categories to which the CRD
requirements on variable remuneration, in-
cluding the bonus cap, the deferral of variable
remuneration and its pay-out in instruments
have to be applied. The remuneration policy
for identified staff should align its variable
remuneration with the risk profile of the in-
stitution in the long-term. 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 and decisions. The
application of a harmonised set of criteria by
institutions will also lead to a more uniform
identification outcome and contribute to a lev-
el playing field between banks. Figures pub-
lished in the EBA’s remuneration benchmark-
ing report show that so far the identification
outcomes between similar institutions differed
significantly. For the bonus year 2014 and in
the future, the EBA expects the remuneration
provisions will be applied to a higher and more
consistent number of identified staff.
Furthermore, the RTS on identified staff in-
clude a combination of qualitative and quan-
titative criteria which have to be applied by all
institutions subject to the CRD, including to
subsidiaries that are not themselves subject
to the CRD. The qualitative criteria are related
to the role and decision-making power of staff
members (e.g. staff is a member of a manage-
ment body, is a senior manager, has the au-
thority to commit significantly to credit risk ex-
posures, etc.) and the quantitative criteria are
related to the level of total gross remuneration
in absolute or in relative terms. Under specific
Figure 8: Ratio of identified staff compared to the number of staff within institutions in 2013
0.0 %
0.1 %
0.2 %
0.4 %
0.8 %
1.6 %
3.1 %
6.3 %
12.5 %
25.0 %
50.0 %
100.0 %