Report from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions Report on the application by Member States of the EU of the Commission 2009/384/EC Recommendation on remuneration policies in the financial services sector (2009 Recommendation on remuneration policies in the financial services sector) {COM(2010) 284 final} {COM(2010) 285 final} {SEC(2010) 671}
Date: 2010-05-26
Institutions: European Commission
Subjects: business management, corporate governance, economic recession, financial market, remuneration of work, report

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EUROPEAN COMMISSION 

Brussels, 2.6.2010 
COM(2010) 286 final 

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE 
COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE 
COMMITTEE OF THE REGIONS  

Report on the application by Member States of the EU of the Commission 2009/384/EC 
Recommendation on remuneration policies in the financial services sector (2009 
Recommendation on remuneration policies in the financial services sector) 

{COM(2010) 284 final} 
{COM(2010) 285 final} 
{SEC(2010) 671} 

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REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE 
COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE 
COMMITTEE OF THE REGIONS  

Report on the application by Member States of the EU of the Commission 2009/384/EC 
Recommendation on remuneration policies in the financial services sector (2009 
Recommendation on remuneration policies in the financial services sector) 

(Text with EEA relevance) 

1. 

OBJECTIVE OF THE REPORT 

Whilst  the  level  of  remuneration  in  the  financial  services  sector  has  been  a  much  debated 
issue for some time now, until recently, little attention was paid to the short-term focus and 
lack  of  risk  adjustment  of  annual  bonuses/variable  remuneration  in  the  financial  services 
industry1.  

There  is,  however,  now  a  widespread  consensus  that  annual  bonuses'  intrinsic  philosophy 
encourages excessive risk-taking as, in the absence of any "malus" or "clawback" provisions, 
recipients can only cash part of profits they generate without bearing the consequences of any 
losses in case of materialisation of the risk. 

These  remuneration  policy  problems  in  the  financial  services  sector  are  not  limited  to 
directors´ and managers´ pay, but also extend to remuneration schemes at other levels, notably 
to those persons whose work involves risk-taking (e.g. traders) and whose remuneration for a 
variable part is a function of performance.  

In  its  Communication  dated  4th  March,  "driving  the  European  recovery"2,  the  European 
Commission indicated that it would strengthen its 2004 Recommendation on remuneration of 
directors of listed companies and table a new Recommendation on remuneration in financial 
services to address perverse incentives throughout firms.  

In  line  with  the  G20  London  Summit  conclusions3,  the  Commission  Recommendation  on 
remuneration  policy  in  the  financial  services  sector  was  adopted  on  30  April  20094.  The 

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4 

In 2008, a Counterparty Risk Management Policy Group III (CRMPG III) formed in the US to analyse 
the credit market crisis concluded in its report that compensation schemes in the financial services were 
one  of  five  primary  driving  forces  of  the  financial  crisis.  CRMPG  III  stressed  the  need  for  properly 
aligning  compensation  incentives  with  the  long  term  interests  of  the  financial  institution  and  for 
discouraging  short-run  excesses  in  risk  taking.  At  EU  level,  de  Larosière  report  came  to  the  same 
conclusion  when  it  recommended  to  focus  on  the  structure  of  remuneration  policy  in  the  financial 
services sector and to "re-align compensation incentives with shareholder interests and long-term, firm-
wide profitability". 
Commission  Communication  of  4  March  2009  to  the  Spring  European  Council,  "Driving  European 
Recovery" - COM(2009) 114. 
G20 Summit conclusions, London, 2 April 2009, paragraph 15. 
Commission  Recommendation  2009/384/EC  on  remuneration  policies  in  the  financial  services  sector 
(OJ L 120, 15.5.2009, p. 22). 

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Commission became the first G20 participant to implement G20 conclusions on remuneration 
policy in the financial services sector. The main objective of the new Recommendation is to 
ensure  that  remuneration  policies  of  financial  institutions  do  not  encourage  excessive  risk 
taking  and  are  in  line  with  the  long-term  interests  of  financial  institutions.  The 
Recommendation invites Member States to adopt measures in four main areas: (i) structure of 
remuneration policy, (ii) governance, (iii) disclosure of remuneration policy, (iv) supervision5. 

The  Commission  wanted  to  act  quickly  and  send  a  strong  and  immediate  political  signal  to 
Member  States  and  market  operators  that  a  substantial  change  in  the  way  remuneration 
policies were designed and implemented had to take place.  

The  Commission  was  also  of  the  view  that  the  Recommendation  should  apply  across  the 
financial  services  industry,  regardless  of  the  legal  status  of  the  financial  institution.  The 
Commission considered that a limited application of the new principles (for instance only to 
banks and investment firms) would have left aside financial institutions which may also be of 
importance  to  maintain  financial  stability,  and  wrong  incentive  policies  inducing  excessive 
risk taking in these institutions could have the same consequences as in banks and investment 
firms. Furthermore, applying principles on sound remuneration practices only to a limited part 
of  financial  services  industry  could  result  in  a  distortion  of  competition  between  different 
sectors which compete for attracting similar talent on the same labour market. 

The  objective  of  this  report,  which  the  Commission  committed  to  produce  one  year  after 
adoption of its Recommendation, is to evaluate the extent to which Member States have put in 
place  the  necessary  framework  in  order  to  give  effect  to  the  main  principles  of  the  2009 
Recommendation on remuneration policy in the financial services sector. Member States were 
invited  to  take  the  necessary  measures  to  promote  the  application  of  the  Commission 
Recommendation by 31 December 2009. 

This  report  is  based  on  the  replies  of  Member  States  to  a  Commission  questionnaire.  This 
report is completed by a Commission staff working paper which accompanies this report and 
contains  the  tables  that  indicate  the  extent  to  which  Member  States  have  followed  the 
requirements of the Recommendation. 

2. 

MAIN FINDINGS OF THE EVALUATION 

16 Member States (BE, BG, CY, DE, ES, FR, HU, IT, LT, LV, LU, MT, NL, RO, SE, UK) 
adopted  national  measures  in  accordance  with  the  Commission  Recommendation.  Of  the 
remaining 11 (AT, CZ, DK, EE, EL, FI, IE PL, PT, SI, SK) Member States, six indicated that 
they were in the process of preparing or adopting relevant national measures in this field. 

In six Member States (DE, FR, IT, MT, NL, UK) principles on sound remuneration policies 
are  already  applicable  to  2009  bonuses.  In  other  Member  States  these  principles  are  to  be 
applied by relevant financial institutions in the course of 2010. 

5 

For  a  detailed  description  of  the  content  of  the  Recommendation,  please  see  the  Commission  staff 
working document SEC(2010) 671 that supplements this Report. 

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Only  seven  Member  States  (BE,  FR,  HU,  LT,  LV,  NL,  SE)  adopted  national  measures  that 
apply  to  financial  undertakings  across  the  financial  services  sector.  In  the  nine  remaining 
Member  States,  the  scope  of  the  national  measures  varies  substantially,  although  all  cover 
credit institutions. 

All  16  Member  States  adopted  national  measures  to  risk-adjust  remuneration  policies  and 
align them with long term interest of the financial institutions. However, there are substantial 
differences  on  the  content  and  level  of  detail  of  the  national  provisions  dealing  with  the 
structure of the remuneration policy.  

A  limited  number  of  Member  States  fully  implemented  important  recommendations  on 
governance,  such  as  the  role  of  (supervisory)  boards  or  the  qualification  and  expertise  of 
members of remuneration committees.  

The content of disclosure requirements varies between Member States. Upcoming legislation 
aiming at enhancing disclosure requirements is announced in several Member States. 

3. 

OF 
ASSESSMENT 
RECOMMENDATION 

3.1. 

Scope and general issues 

THE 

IMPLEMENTATION 

OF 

THE 

16 Member States (BE, BG, CY, DE, ES, FR, HU, IT, LT, LV, LU, MT, NL, RO, SE, UK) 
adopted national measures in accordance with the Commission Recommendation. 11 Member 
States  (AT,  CZ,  DK,  EE,  EL,  FI,  IE  PL,  PT,  SI,  SK  )  have  not  yet  adopted  any  specific 
national measures by the time of drafting of this report. Out of these 11 Member States, six 
(CZ, DK, EE, FI, IE and PT ) indicated nonetheless that they were in the process of preparing 
or adopting relevant national measures6, in particular in the perspective of the future revision 
of the Capital Requirements Directive (CRD)7.  

Among Member States that did not take any specific measures yet and are not in process of 
doing  so,  AT  and  EL  argued  that  they  already  have  several  national  provisions  on 
remuneration.  However,  these  provisions  relate  to  general  company  law  or  corporate 
governance  and  do  not  specifically  address  the  issues  raised  by  the  Commission 
Recommendation on remuneration policies in the financial services sector. 

SK estimated that regulating remuneration was not necessary, taking into account low levels 
of  remuneration  of  managers  in  Slovak  financial  institutions,  their  limited  impact  on  the 
stability, low expansion of investment banking sector and investment services. 

PL did not find justifiable to intervene at this stage into the remuneration schemes of private 
companies,  leaving  it  to  the  prudence  and  responsibility  of  relevant  corporate  bodies  to 
include  principles  of  the  Recommendation  in  their  rules  on  corporate  governance  and  best 
business  practices.  PL  is  however  planning  to  implement  national  principles  regarding 

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7 

For the purpose of this report, only Member States that adopted national measures in accordance with 
the Commission Recommendation will be analysed.  
COM(2009) 362. For more details see Section 4 of this report. 

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remuneration policy of credit institutions and investment firms following the revision of the 
CRD. 

With the exception of six Member States (DE, FR, IT, MT, NL, UK) for which principles on 
sound remuneration policies are already applicable to bonuses awarded in 2009, principles on 
sound  remuneration  polices  in  most  Member  States  are  to  be  applied  by  relevant  financial 
institutions in the course of 2010.  

Whilst all 16 Member States that adopted specific national measures in accordance with the 
Commission Recommendation cover credit institutions, only seven Member States (BE, FR, 
HU, LT, LV, NL, SE) adopted national measures that apply to financial undertakings across 
the financial services sector. In the nine remaining Member States, the scope of the national 
measures varies substantially: 

- Six Member States (BU, CY, ES, IT8, MT, RO) only cover credit institutions;  

- One Member State (UK) also covers investment firms; 

- One Member State (DE) also covers the insurance sector and investment firms; 

- One Member State (LU) covers all financial undertakings except the insurance sector. 

In several Member States, a threshold or a size condition is in place to trigger application of 
all  or  certain  more  stringent  rules.  In  IT,  the  October  2009  Bank  of  Italy  provisions  have 
identified the six major banking groups which, in addition to the rules applicable to all banks, 
have to be compliant with the September 2009 FSB Implementation Standards. In the UK, the 
FSA’s Remuneration Code incorporated into the FSA’s Handbook applies to around 26 of the 
larger banks, building societies and broker dealers incorporated in the UK.  

In two Member States (DE, ES), financial institutions covered are being asked to determine 
themselves  to  what  extent  they  should  be  covered  (self-assessment).  In  DE,  all  covered 
financial institutions should comply with general requirements linking remuneration policies 
with  sound  risk  management  and  long  term  objectives.  However,  the  relevant  financial 
institution  shall  determine  on  its  own,  on  the  basis  of  a  risk  analysis,  whether  special 
requirements should apply. According to DE, "the analysis must be plausible, comprehensive 
and transparent for third parties". 

All  16  Member  States  apply  the  principles  to  those  categories  of  staff  whose  professional 
activities  have  a  material  impact  on  the  risk  profile  of  the  financial  undertaking.  However, 
several  Member  States  (BG,  CY,  HU,  IT,  MT,  NL,  RO,  SE,  UK),  in  line  with  CEBS 
guidelines, went further and captured all categories of staff with a special emphasis on senior 
employees  and  other  risk  takers.  Some  Member  States  (BE,  DE,  IT9,  SE)  asked  financial 
institutions themselves to draw a list of categories of staff that have a material impact on the 
risk  profile  of  their  institution.  Apart  from  giving  examples  (such  as  senior  management  or 

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IT  indicated  that  they  have  some  general  principles  on  compensation  related  to  the  provision  of 
investment  services  and  activities  that  would  apply  to  investment  firms  and  asset  management 
companies (joint Bank of Italy and Consob Regulation, issued on October 2007). 
Only for the 6 Italian major banks. 

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control  functions),  no  Member  State  gave  a  definition  of  categories  of  staff  that  have  a 
material impact on the risk profile10,11. 

Most Member States (except FR) adopted national provisions on remuneration in the financial 
services  sector  through  a  supervisory  act.  This  can  correspond  to  a  recommendation  or  to  a 
binding  legal  act  where  the  supervisory  authority  has  been  empowered  to  issue  mandatory 
rules  and  principles.  In  FR,  a  regulation  (Arrêté)  was  adopted  by  the  Ministry  of  finance. 
Several Member States specified that if a relevant financial institution does not comply with 
their  requirements,  national  supervisors  are  entitled  to  take  supervisory  measures,  e.g.  to 
require rectification of the remuneration systems ("qualitative measures") or to ask for capital 
add-ons ("quantitative measures"). Recommendations dealing with supervision were in some 
they  are  part  of  general 
Member  States 
powers/prerogatives  granted 
to  competent  authorities.  Disclosure  requirements  were 
sometimes  implemented  in  a  corporate  governance  code  (when  they  typically  concern 
directors of listed financial institutions). 

legislation  as 

implemented 

through 

Several Member States (BG, DE, ES, UK) specified that current supervisory measures were 
without  prejudice  to  forthcoming  national  legislation.  In  three  Member  States  (DE,  FR  and 
NL)  national  measures  were  accompanied  by  industry's  extra  commitments  contained  in  a 
business code.  

Where national measures were adopted, all Member States indicated that they would apply to 
relevant  financial  institutions  on  an  individual  and  consolidated  basis12.  In  line  with  EU 
requirements, branches of EEA institutions operating in the territory of an EU Member State 
are not captured.  

All  Member  States  that  adopted  national  measures  included  a  "proportionality  test"  to  take 
into  account  the  nature,  the  size  as  well  as  the  specific  scope  of  activities  of  the  financial 
institution.  Also,  all  16  Member  States  excluded  fees  and  commissions  from  the  scope  of 
application of their national measures, in accordance with the Commission Recommendation. 

3.2. 

Structure of remuneration policy 

All 16 Member States implemented the general requirements contained recommendations 3.1 
and  3.2  of  the  Commission  Recommendation.  Recommendation  3.1  establishes  the  general 
requirement  that  remuneration  policy  should  be  linked  to  sound  risk  management  and 
recommendation  3.2  aims  at  aligning  remuneration  policies  with  long  term  interest  of  the 
financial institution. However, ES limited the scope of application of recommendation 3.2 to 

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12 

SE  nonetheless  specified  that  "An employee  whose  actions  can  have  a  material  impact  on  the  risk 
exposure of the firm is defined in the following way: An employee belonging to a personnel category 
that, as a part of its assignment, exercises or can exercise a not insignificant influence on the firm's risk 
exposure". 
In  the  UK,  covered  financial  institutions  are  expected  to  include  "People  who  perform  a  significant 
influence function for a  firm  (and  should  therefore  have been  approved  to perform  this  function)  and 
employees  whose  activities  have,  or  could  have,  a  material  impact  on  the  firm’s  risk  profile". 
Presumption is that an employee in the second category is a covered employee if their total expected 
compensation for 2009 is greater than £1million. 
Subject, in some cases, to the specific labour and/or fiscal law rules of third country in which the firms 
of the group operate. 

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executive  and  board  members13.  UK 
recommendation 3.2 (because of its overall code). 

indicated 

that 

it 

implemented  "implicitly" 

Although  all  16  Member  States  implemented  recommendation  4.1  on  the  need  for  an 
appropriate balance between fixed and variable pay (with the exception of ES which included 
the  same  limitation  as  above),  only  four  Member  States  (BE,  LU,  MT,  NL)  included  a 
requirement that financial institutions should set a maximum limit on the variable component. 

15 Member States (except RO) implemented the recommendation 4.2 on bonuses policy. HU 
only  partially  implemented  the  recommendation  as  it  did  not  provide  any  rule  on  the 
possibility to withhold bonuses. 

While all 16 Member States implemented the recommendation 4.3 on deferral of the variable 
component,  six  Member  States  (BG,  CY,  HU,  LV,  MT,  and  RO)  did  not  include  any 
reference to a minimum deferment period. IT included such a reference only for the six major 
banks. LT did not implement this provision for the insurance sector.  

All  16  Member  States  implemented  the  recommendation  4.4  on  the  risk  adjustment  of  the 
deferred variable pay but LT did not extent its scope of application to the insurance sector. 

Out of the 16 Member States, two (RO and MT) did not implement the recommendation 4.5 
on termination payment. LT limited the scope to exclude the insurance sector. FR limited the 
scope to directors and managers of listed companies. 

Only six Member States (BE, DE, ES, LU, MT, NL) implemented the recommendation 4.6 on 
clawback and the possibility to reclaim part (or all) of the variable component. BG, CY and 
HU limited the clawback to cases of fraud. IT limited its scope to the six major banks. LT did 
not  implement  it  for  credit  institutions.  FR,  LV,  RO,  SE,  UK  did  not  implement  this 
recommendation. 

Three  Member  States  (BG,  MT  and  RO)  did  not  implement  the  recommendation  4.7 
concerning the need to update over time the structure of the remuneration policy.  

All 16 Member States implemented recommendation 5.1 on performance measurement.  

Eight Member States (BE, DE, ES, FR, IT, LU, NL, UK) implemented the recommendation 
5.2 setting a multi-year framework for the assessment of performance. LV implemented it but 
added  derogation  for  employment  contracts  that  were  shorter  than  the  performance  period. 
RO  did  not  implement  the  recommendation.  BG,  CY,  HU,  LT,  MT  and  SE  partially 
implemented it to the extent that they do not foresee a specific multi-year framework but only 
request to take into account the longer term performance and current and future risk. 

All  16  Member  States  implemented  the  recommendation  5.3  on  risk  adjustment  of  the 
performance measurement. However, NL did not specify that the risk adjustment should take 

13 

Spain  argued  that  taking  into  account  that  i)  remuneration  policy  has  not  shown  to  be  a  problem  in 
Spain, and ii) the need to guarantee coherence with European legislative developments, they are waiting 
for the adoption of the relevant European Directives to implement them. 

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into account the cost of the capital employed and the liquidity required. LT did not implement 
the recommendation for the insurance sector. 

All  16  Member  States  implemented  recommendation  5.4  relating  to  the  insertion  of  non 
financial criteria in the individual performance assessment.  

The substantial differences of national implementation on an  element as fundamental as the 
structure  of  the  remuneration  policy  are  worrying.  The  differences  even  widen  where  the 
Member  States  (FR,  DE,  IT,  NL,  SE,  UK)  have  also  implemented  the  more  stringent  rules 
contained in the FSB Implementation Standards14. 

3.3. 

Governance 

Concerning recommendation 6.1 on the need to include measures to avoid conflicts of interest 
and setting requirements on procedures determining remuneration, only ES did not implement 
it. Furthermore, MT and NL only partially implemented it as they either did not include at all 
any specific provisions on conflicts of interest (MT) or limited the scope to board members 
with a limitative list of potential conflicts of interest (NL). 

All  16  Member  States  adopted  national  measures  implementing  the  recommendation  6.2  on 
the role of the board. However, two Member States (BE and MT) only partially implemented 
it  to  the  extent  that  there  is  no  determination  by  the  (supervisory)  board  of  directors' 
remuneration.  Furthermore,  FR  the  board  determines  directors'  remuneration  only  in  firms 
having received public assistance. 

Only  RO  did  not  implement  it  recommendation  6.3  on  the  involvement  of  control  function 
and,  where  appropriate,  human  resources  departments  or  external  experts  in  the  design  of 
remuneration policy. However, DE and LT did not implement it for the insurance sector. LT 
further excluded banks from its scope. 

Out of 16 Member States, only seven (BE, FR, LV, LU, NL, SE, UK) fully implemented the 
recommendation  6.4  on  the  expertise  and  qualification  of  (supervisory)  board  and 
remuneration  committee  members.  LT  did  not  implement  it  for  banks  and  insurance 
companies.  Other  Member  States  (BG,  CY,  DE,  ES,  IT)  only  have  general  provisions  on 
qualifications and independence of the remuneration committee members or control functions. 

Concerning recommendation 6.5 on the review of the remuneration policy’s implementation 
by control functions, only ES did not implement it. 

13 Member States (BE, BU, CY, ES, FR, IT, LV, LU, MT, NL, RO, SE, UK) implemented 
the recommendation 6.6 on staff members engaged in control processes. DE implemented it 
for  credit  institutions  and  investment  firms  but  only  partially  for  the  insurance  sector  (no 
provisions on remuneration of control staff). LT did not fully reflect content for the insurance 
sector.  HU  did  also  only  partially  implement  it  as  it  does  not  provide  for  specific  rules  on 
remuneration  for  control  functions,  other  than  with  regard  to  non-involvement  of  business 
units. 

14 

There are other differences due to specific national provisions or in case of bailed financial institutions 
but they are more specific and limited in scope. 

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Overall,  the  level  of  implementation  of  recommendations  6.2  and  6.4  is  unsatisfactory  and, 
given their importance, is problematic. 

3.4. 

Disclosure of remuneration policy  

On  recommendation  7  containing  a  general  disclosure  requirement,  only  ES  did  not 
implement it but informed of upcoming legislation on this issue. LT partially implement it as 
it did not adopt specific provisions for the insurance sector. 

Recommendation  8  further  specifies  the  content  of  disclosure  requirements.  Seven  Member 
States (BE, FR, IT, LV, LU, SE, UK) fully implemented it. DE fully implemented it for credit 
institutions and investment firms but partially for the insurance sector (no detailed disclosure 
is  required).  BG,  CY,  LT,  MT,  NL  and  RO  partially  implemented  it  as  either  some 
requirements are missing or the scope is incomplete in terms of financial institutions covered 
or  in  terms  of  categories  of  staff  (i.e.  only  directors)/type  of  legal  forms  (i.e.  only  listed 
companies) covered. ES and HU did not implement it.  

3.5. 

Supervision 

Recommendation  11  invited  Member  States  to  ensure  that  all  relevant  information  is 
communicated  by  financial  institutions  to  competent  authorities,  including  an  indication  of 
compliance. Out of 16 Member States, only ES did not comply with this recommendation. LT 
did not foresee any specific rule for insurance companies.   

Recommendation 12 invited Member States to ensure that competent authorities may request 
and have access to all information they deemed necessary to evaluate compliance by financial 
institutions.  Out  of  16  Member  States  that  adopted  national  measures,  only  HU  did  not 
implement this recommendation.  

4. 

ONGOING DEVELOPMENTS  

the  Communication15  accompanying 

In 
the 
Commission acknowledged the latter were only the first stage in the Commission’s strategy to 
address this issue and that legislation at EU level would also follow.  

the  aforementioned  Recommendations, 

In  July  2009,  the  Commission  adopted  a  proposal  to  revise  the  Capital  Requirements 
Directive  (CRD)16  tackling,  inter  alia,  remuneration  policies  of  credit  institutions.  The 
Commission,  in  a  context  of  crisis,  prioritised  legislative  measures  in  the  banking  and 
investment  firms  sector  since  this  was  where  the  evidence  of  the  negative  impact  of 
misaligned incentives was the greatest. 

In  its  proposal,  Commission  aimed  at  translating  into  EU  legal  requirements  the  principles 
contained  in  its  Recommendation  on  remuneration  policy  in  the  financial  services  sector. 
Banking supervisors are required to oversee remuneration policies and are given the power to 
sanction  banks  which  do  not  comply  with  the  new  requirements.  They  will  have  several 
measures  at  their  disposal  to  sanction  non-compliance,  such  as  requiring  the  institution  to 

15 
16 

COM(2009) 211, 30.4.2009. 
COM(2009) 362. 

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reduce the risk inherent to particular remuneration systems, impose fines or, as a last resort, 
capital add-ons. 

The general agreement adopted in the ECOFIN Council meeting of November 2009 proved 
the  EU  determination  to  act  on  this  issue.  Taking  into  account  the  FSB  additional 
Implementation Standards on pay adopted in September 2009, Member States further agreed 
to strictly reflect them in the CRD proposal17.  

Meanwhile,  similar  provisions  on  remuneration  policy  were  also  introduced  by  Member 
States  in  the  proposal  for  a  directive  on  Alternative  Investment  Fund  Managers  ("hedge 
funds")18. 

Both proposals are currently being discussed in the Council and European Parliament.  

5. 

CONCLUSION 

Notwithstanding  the  momentum  to  engage  a  substantial  reform  in  the  area  of  remuneration 
policies  provided  by  the  crisis,  only  16  Member  State  fully  or  partially  applied  the 
Commission Recommendation. Whilst six Member States are in process of adopting measures 
to promote the application of the Recommendation, there is still a relatively high number of 
Member  States  that  did  not  initiate  any  measures  or  took  unsatisfactory  ones.  Only  seven 
Member  States  apply  relevant  measures  across  the  financial  services  sector.  The  substantial 
differences of national implementation on an element as fundamental as the structure of the 
remuneration policy are worrying. 

Further  efforts  are  thus  needed  to  deal  with  this  problem.  No  successful  reform  can  be 
engaged  without  a  real  culture  change  in  the  way  the  financial  services  sector  decides  to 
incentivise  its  staff  (from  employees  to  executives).  Some  financial  institutions  already 
expressed their opposition to a reform in this area and continue to perceive short term bonus 
culture as a distinctive competitive edge and the most profitable manner to incentivise their 
staff.  In  fact,  financial  institutions  have  a  keen  interest  in  perpetrating  a  short  term  bonus 
culture in order to maintain a highly flexible workplace19. Financial services employees will 
only change their risk behaviour if they know they will be assessed over a sufficiently long 
period  of  time  and  that  their  level  of  pay  will  be  effectively  reduced  if  they  take  excessive 
risks.  

Notwithstanding the forthcoming legislation, supervisory guidance will be necessary to ensure 
a  common  approach  within  the  EU.  To  ensure  a  global  level  playing  field,  supervisory 
convergence will also be required in the context of the Basel Committee.  

As regards practices in financial institutions themselves, at this stage, it is difficult to assess if 
and to what extent financial institutions have, in practice, put into place sound remuneration 
policies. It is too early and most of the regulatory changes are still ongoing. Though financial 
institutions  have  started  to  modify  their  remuneration  practices,  given  their  concerns  about 

17 
18 
19 

See agreement found on 10 November 2009 during ECOFIN Council. 
COM(2009) 207, 30.4.2009. 
Short-term  bonuses  imply  short  tem  employment  contracts.  Being  able  to  reduce  the  number  of 
employees any times a year, financial institutions enhance competition amongst staff and preserve the 
level of bonus pools as part of this culture of mobility.  

EN 

10 

   EN 

                                                 
first-mover  disadvantages,  it  is  unlikely  that  they  will  commit  to  a  long  term  overall 
remuneration  policy  reform  until  adoption  of  pending  legislation  in  this  area20.  Although 
financial  institutions  are  communicating  externally  and  "tactically  marketing"  some 
remuneration policy changes, in particular for their directors21, very little or no information is 
yet available or disclosed on individual remuneration at a lower level and on its structure. 

On its side, the Commission intends to: 

–  propose similar legislative measure on remuneration in the non banking financial services 

sector (insurance, UCITS) in the course of 2010/early 2011; 

–  ensure  that  Member  States  and  the  European  Parliament  find  a  swift  agreement  on  the 
pending  legislative  proposals  that  deal  with  remuneration  issues  and  commit  to  a  strict 
monitoring of their future implementation by Member States; 

–  ensure  that,  through  its  participation  to  the  FSB  and  G20,  an  effective  application  of 
similar  rules  on  remuneration  policy  in  the  financial  services  sector  is  taking  place  at 
global level to provide a level playing field on this issue; 

–  re-examine  the  situation  regularly  and  reserve  the  right  to  come  with  any  additional 

measures, as required. 

20 

21 

The  recent  IIF  report  states  that  though  "Progress  toward  aligning  compensation  with  the  IIF/FSB 
Principles  also  was  being  made,  much  more  work  needed  to  be  done.  While  a  majority  of  the  firms 
surveyed linked compensation to performance and used deferrals in compensation payouts, most faced 
challenges in aligning compensation to the risk time horizon of the revenue and in incorporating cost of 
capital and risk factors into the assessment of performance". 
This  includes  self  limitations  or  caps  on  bonuses  or  golden  parachutes  for  top  executives,  substantial 
amount of money given to charity, etc. 

EN 

11 

   EN