Response to consultation Paper on Draft Guidelines on sound remuneration policies under Directive 2013/36/EU
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According to Para 55 of the draft paper in G-SIIs und O-SIIs the remuneration committee should include a majority of members who are independent and be chaired by an independent member. On this matter we interpret the broad reference to ‘Independence as set out in the EBA guidelines on internal governance and see also the joint EBA‐ESMA guidelines on the assessment of the suitability of members of the management body and key function holders’ as set out in Footnote 19 of the EBA draft in the sense that they have to be independent of mind and formally independent.
The relevant Article 95(1) CRD in conjunction with Article 75(2) CRD do not provide a legal basis for such a composition requirement regarding the remuneration committee in systemically relevant institutions. Hence, EBA would obviously go beyond its mandate when establishing further guidance and regulations on independent members in the remuneration committee in its final version of Guidelines on sound remuneration policies.
In addition, a reference of EBA in the Guidelines to the legal basis of Article 74(3) CRD according to which institutions shall have robust governance arrangements cannot justify every single exceedance of a legally limited mandate.
Moreover, according to Article 16(1) EBA Regulation, EBA shall issue guidelines “with a view to establishing consistent, efficient and effective supervisory practices within the ESFS, and to ensuring the common, uniform and consistent application of Union law”. Experience has shown that the Member States have implemented the requirements regarding independence in completely different ways, it is not very useful to require a majority of independent members for the remuneration committee. This is because these requirements will at best lead to further legal fragmentation instead of harmonisation as Article 16 (1) EBA-Regulation is aiming at.
If the remuneration committee shall be constituted in a way that it must be chaired by an independent member, a competent and independent judgment on remuneration policies and practices and the incentives created for managing risk, capital and liquidity in the sense of Article 95(1) CRD will be ensured for all significant institutions.
In conclusion, apart from the lack of a legal basis in CRD for imposing the proposed provisions for the composition of the remuneration committee there’s also no evidence-based need to change the legal status quo.
● Date of application
According to Para 12 the adapted Guidelines shall apply from 26 June 2021. This proposed date of application is obviously too ambitious as the consultation runs until end of January 2021 and the final Guidelines can subsequently be expected in the first half of 2021 according to EBA. And it goes without saying that the institutions need an appropriate timeframe for an internal implementation of the new requirements on the basis of the revised Guidelines. This is particularly true in the context of the current COVID-19 crisis.
Hence, the date of application should be set at least six months after the translation of the Guidelines in all official languages of the EU.
Lit 94 c): For variable remuneration relating to multi-year performance or periods, a pro-rata allocation should be possible.
Lit 94d: Please add a clarification that severance payments, which are not subject to the bonus cap and the deferral and payment in instruments requirement according to par. 170 of the EBA are not taken into consideration.
Question 1: Are the amendments to the subject matter, scope and definitions appropriate and sufficiently clear?
Composition of the remuneration committee (Chapter 2.4.1)According to Para 55 of the draft paper in G-SIIs und O-SIIs the remuneration committee should include a majority of members who are independent and be chaired by an independent member. On this matter we interpret the broad reference to ‘Independence as set out in the EBA guidelines on internal governance and see also the joint EBA‐ESMA guidelines on the assessment of the suitability of members of the management body and key function holders’ as set out in Footnote 19 of the EBA draft in the sense that they have to be independent of mind and formally independent.
The relevant Article 95(1) CRD in conjunction with Article 75(2) CRD do not provide a legal basis for such a composition requirement regarding the remuneration committee in systemically relevant institutions. Hence, EBA would obviously go beyond its mandate when establishing further guidance and regulations on independent members in the remuneration committee in its final version of Guidelines on sound remuneration policies.
In addition, a reference of EBA in the Guidelines to the legal basis of Article 74(3) CRD according to which institutions shall have robust governance arrangements cannot justify every single exceedance of a legally limited mandate.
Moreover, according to Article 16(1) EBA Regulation, EBA shall issue guidelines “with a view to establishing consistent, efficient and effective supervisory practices within the ESFS, and to ensuring the common, uniform and consistent application of Union law”. Experience has shown that the Member States have implemented the requirements regarding independence in completely different ways, it is not very useful to require a majority of independent members for the remuneration committee. This is because these requirements will at best lead to further legal fragmentation instead of harmonisation as Article 16 (1) EBA-Regulation is aiming at.
If the remuneration committee shall be constituted in a way that it must be chaired by an independent member, a competent and independent judgment on remuneration policies and practices and the incentives created for managing risk, capital and liquidity in the sense of Article 95(1) CRD will be ensured for all significant institutions.
In conclusion, apart from the lack of a legal basis in CRD for imposing the proposed provisions for the composition of the remuneration committee there’s also no evidence-based need to change the legal status quo.
● Date of application
According to Para 12 the adapted Guidelines shall apply from 26 June 2021. This proposed date of application is obviously too ambitious as the consultation runs until end of January 2021 and the final Guidelines can subsequently be expected in the first half of 2021 according to EBA. And it goes without saying that the institutions need an appropriate timeframe for an internal implementation of the new requirements on the basis of the revised Guidelines. This is particularly true in the context of the current COVID-19 crisis.
Hence, the date of application should be set at least six months after the translation of the Guidelines in all official languages of the EU.
Question 2: Are the amendments regarding gender neutral remuneration policies sufficiently clear?
Article 74 CRD V requires a "gender neutral" remuneration policy, which is defined as remuneration principles based on "equal pay". In this context, it is unclear why EBA refers to career development and succession plans, access to training and ability to apply for internal vacancies, as those are not remuneration-related.Question 4: Are the guidelines regarding the application of waivers within section 4 sufficiently clear?
RZ 94 Waivers of variable remuneration pay-out processLit 94 c): For variable remuneration relating to multi-year performance or periods, a pro-rata allocation should be possible.
Lit 94d: Please add a clarification that severance payments, which are not subject to the bonus cap and the deferral and payment in instruments requirement according to par. 170 of the EBA are not taken into consideration.
Question 5: Is the section 8.4 on retention bonuses sufficiently clear?
Retention Bonuses are primarily used in cases where institutions are in difficult situations due to circumstances like tough market conditions or in cases of wind-down. In such cases it is especially important that key staff is kept motivated to help navigate the institution through tough times or to properly complete the wind-down process. Paying a retention bonus in full only after the retention period is concluded does not achieve that goal in our opinion. While we agree that a retention bonus should not be paid “up-front” we suggest a split where part of the retention bonus is paid to the eligible employees during the retention period while a significant amount will only be paid after the retention period is over (if all other conditions for allocating and paying the retention bonus are fulfilled), e.g. in a 2-year retention program: 30% of the retention bonus will be paid after the first year, 70% will be paid after the second year.Question 6: Is the amended section 9 on severance payments sufficiently clear?
Lit 94d: Please add a clarification that severance payments, which are not subject to the bonus cap and the deferral and payment in instruments requirement according to par. 170 of the EBA are not taken into consideration.Upload files
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