COMMISSION STAFF WORKING DOCUMENT Detailed assessment of the remuneration rules under Directive 2013/36/EU and Regulation (EU) No 575/2013 Accompanying the document Report from the Commission to the European Parliament and the Council Assessment of the remuneration rules under Directive 2013/36/EU and Regulation (EU) No 575/2013
Date: 2016-07-28
Institutions: Directorate-General for Justice and Consumers, European Commission
Subjects: business management, credit institution, financial legislation, financial market, investment company, remuneration of work, right of establishment, wage determination

EN 

   EN 

   EUROPEAN COMMISSION  Brussels, 28.7.2016  SWD(2016) 265 final   COMMISSION STAFF WORKING DOCUMENT Detailed assessment of the remuneration rules under Directive 2013/36/EU and Regulation (EU) No 575/2013 Accompanying the document Report from the Commission to the European Parliament and the Council Assessment of the remuneration rules under Directive 2013/36/EU and Regulation (EU) No 575/2013 {COM(2016) 510 final} {SWD(2016) 266 final}  
 
 
1. INTRODUCTION 

The  Capital  Requirements  Directive 1  ("CRD"  or  “the  Directive")  and  the  Capital  Requirements 
Regulation2 ("CRR"  or  “the  Regulation”)  contain  requirements  regarding  the  remuneration  policies 
and practices of credit institutions and investment firms3. 

The  Directive  contains  provisions  regarding  the  principles  and  design  of  remuneration  policies, 
together with a number of rules concerning the pay-out process and structure of the remuneration of 
staff  whose  professional  activities  have  a  material  impact  on  the  institutions’  risk  profile.  The 
Regulation  contains  requirements  for  institutions  to  disclose  elements  related  to  the  design  of  their 
remuneration  systems  and  quantitative  information  for  different  components  of  remuneration 
packages. 

The first set of rules on remuneration within the financial sector was put forward at EU level in the 
Commission  Recommendation  of  30  April  20094,  followed  by  the  introduction  of  binding  rules  on 
remuneration for credit institutions and investment firms in CRD III5, adopted in 2010. Those rules, 
which had to be implemented by the Member States by January 2011, were further extended following 
the adoption of CRD IV in 2013 (with the new rules applicable as of 2014).  

This Staff Working Document (SWD) accompanies the Commission Report COM(2016)510, which is 
submitted  to  the  European  Parliament  and  the  Council  in  fulfilment  of  an  obligation  under  Article 
161(2) CRD. This Article requires the Commission, in close cooperation with the European Banking 
Authority (EBA), to report on the provisions on remuneration in CRD and CRR, and in particular to:  
  Take into account international developments (Section 2 SWD) 
  Review the implementation and enforcement of the provisions on remuneration (Section 3 SWD) 
 

Include  the  identification  of  any  lacunae  arising  from  the  application  of  the  principle  of 
proportionality to the provisions on remuneration (Section 4 SWD) 

  Review the efficiency of the provisions on remuneration (Section 4 SWD)  
  Assess the  impact  of  compliance  with the Maximum  Ratio  Rule (Article 94(1)(g))  in  respect of 

financial stability (Section 5.1 SWD) 

  Assess the  impact  of  compliance  with the Maximum  Ratio  Rule (Article 94(1)(g))  in  respect of 

competitiveness (Section 5.2 SWD) 

  Assess the  impact  of  compliance  with the Maximum  Ratio  Rule (Article 94(1)(g))  in  respect of 
any staff working effectively and physically in subsidiaries established outside the EEA of parent 
institutions  established  within  the  EEA,  and  consider  whether  the  Maximum  Ratio  Rule  should 
continue to apply to any such staff (Section 5.3 SWD) 

In  carrying  out  this  review,  the  Commission  engaged  in  several  work  streams.  It  has  sought 
stakeholders’  input  through  a  public  consultation 6,  a  fact-finding  stakeholder  event 7 and  bilateral 
meetings  with  industry  representatives.  Moreover,  the  Commission  engaged  with  Member  States’ 

and 

credit 

investment 

institutions  and 

the  prudential  supervision  of  credit 

1 Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit 
institutions  and 
investment  firms,  available  at  http://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2013:176:0338:0436:En:PDF 
2 Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements 
http://eur-lex.europa.eu/legal-
institutions 
for 
content/EN/TXT/?uri=CELEX%3A32013R0575  
3 Recitals 62-68 CRD 
4  Commission  Recommendation  2009/384/EC  on  remuneration  policies  in  the  financial  services  sector,  available  at 
http://ec.europa.eu/internal_market/company/docs/directors-remun/financialsector_290409_en.pdf 
5  Directive  2010/76/EU  of  the  European  Parliament  and  of  the  Council  of  24  November  2010  amending  Directives 
2006/48/EC  and  2006/49/EC  as  regards  capital  requirements  for  the  trading  book  and  for  re-securitisations,  and  the 
supervisory review of remuneration policies 
6 Public consultation on impacts of  maximum remuneration ratio under Capital Requirements Directive 2013/36/EU (CRD 
IV), 
at 
remuneration 
http://ec.europa.eu/justice/newsroom/civil/opinion/151015_en.htm 
7

(22.10.2015  – 14.01.2016), 

efficiency  of  CRD 

and  overall 

available 

available 

firms, 

rules 

IV 

at 

-  Fact-finding 

on 

remuneration 

under  CRD 

IV 

(16.12.2015), 

available 

at 

 Stakeholders  Meeting 

http://ec.europa.eu/justice/newsroom/civil/events/151116_en.htm 

2 

 
 
 
                                                        
representatives  and  supervisory  authorities  in  the  context  of  the  Commission’s  Expert  Groups  on 
Banking,  Payments  and  Insurance,  as  well  as  on  Company  Law,  and  EBA’s  Standing  Group  on 
Governance and Remuneration, where the European Securities Markets Authority is also represented. 
The Commission studied available academic literature. An external study8 on the effects of CRD and 
CRR  remuneration  rules  has  also  been  prepared  for  the  Commission,  the  results  of  which  were, 
however, affected by a relatively recent adoption of the CRD and CRR and subsequently limited data 
availability.  

In  accordance  with  the  CRD  mandate,  EBA  was  closely  associated  with  the  review  process  and 
delivered  valuable  information  and  remuneration  data,  inter  alia  gathered  and  processed  for  the 
purpose of its Reports on Remuneration Benchmarking and High-Earners9, and through its Opinions 
on the proportional application of the remuneration rules10 and on role-based allowances11.  

Overall,  the  review  exercise  has  been  hampered  to  some  extent,  as  some  remuneration  rules  have 
entered into force relatively recently and were in practice not always applied to a full extent, often on 
the grounds of proportionality considerations. This created limitations in terms of data availability and 
regarding  some  of  the  aspects  of the analysis  affected  the ability  to  formulate, at  this point in  time, 
conclusive findings.  Another  difficulty  resulted from  the  very  nature  of  the  rules: they  are  meant to 
curb the possible wrong incentives given to individuals and thus to impact on individuals' behaviour. 
Concrete  impact  on  individuals'  behaviour  is  very  complex  to  measure.  Finally,  it  is  important  to 
recognise that the remuneration rules are just one element of the regulatory framework that was put in 
place with the purpose of fostering financial stability. It has for all these reasons not been possible to 
precisely quantify the impact on financial stability of the remuneration rules seen in isolation, and for 
certain aspects a more qualitative assessment has been carried out.  

2. INTERNATIONAL CONTEXT 

This  section  discusses  relevant  international  developments,  which  according  to  Article  161(2)  CRD 
shall be taken into account in the Commission review. 

The  introduction  of  the  CRD  rules  on  remuneration  was  inspired  by  the  developments  at  the 
international level following the 2008 financial crisis. The G20 Leaders in their Declaration from the 
Washington, D.C. Summit on the Financial Markets and the World Economy of 15 November 200812 
called  for  priority  work  on  "reviewing  compensation  practices  as  they  relate  to  incentives  for  risk 
taking and innovation". The G20 London Summit Declaration of 2 April 2009 on Strengthening of the 
Financial  System13 and  the  Statement  from  the  Pittsburgh  Summit  of  24-25  September  200914 both 
confirmed the agreement of the global leaders that "reforming compensation policies and practices is 
an essential part of our effort to increase financial stability", and sealed their commitment to endorse 

of 

approved 

"Benchmarking 

8  institut  für  finanzdienstleistungen  e.V.  (IFF,  2016),  report  available  at  http://ec.europa.eu/justice/civil/company-
law/corporate-governance/index_en.htm  
9 EBA remuneration benchmarking reports: "High earners 2010 and 2011 data"; "High earners 2012 data"; "Benchmarking 
of Remuneration practices at Union level 2012 data"; "Benchmarking of Remuneration practices at Union level and data on 
high earners 2013 data"; "Benchmarking of Remuneration practices at Union level and data on high earners data as of end 
2014"; 
at 
ratios 
higher 
https://www.eba.europa.eu/regulation-and-policy/remuneration/-/topic-documents/ckV8kFRsjau9/more  
10 Opinion  of  the  European  Banking  Authority  on  the  application  of  the  principle  of  proportionality  to  the  remuneration 
provisions  in  Directive  2013/36/EU  (21.12.2015),  available  at  https://www.eba.europa.eu/documents/10180/983359/EBA-
Op-2015-25+Opinion+on+the+Application+of+Proportionality.pdf  
11 Opinion of the European Banking Authority on the application of Directive 2013/36/EU (Capital Requirements Directive) 
regarding  the  principles  on  remuneration  policies  of  credit  institutions  and  investment  firms  and  the  use  of  allowances 
(15.10.2014), 
https://www.eba.europa.eu/documents/10180/657547/EBA-Op-2014-
10+Opinion+on+remuneration+and+allowances.pdf;  EBA  follow  up  report  on  the  actions  taken  by  competent  authorities 
following 
at 
15.10.02014 
https://www.eba.europa.eu/documents/10180/950548/Report+on+the+Use+of+Allowances.pdf  
12 Available at http://www.un.org/ga/president/63/commission/declarationG20.pdf  
13 Available at https://www.imf.org/external/np/sec/pr/2009/pdf/g20_040209.pdf  
14 Available at http://www.g20.utoronto.ca/2009/2009communique0925.html  

(12.11.2015), 

publications 

publication 

available 

available 

available 

Opinion 

data"; 

2014 

the 

the 

all 

of 

at 

3 

 
 
 
                                                        
and  implement  the  Principles  and  standards  on  sound  compensation  practices  adopted  by  the 
Financial Stability Board (FSB)15.   

CRD aims to implement in the EU those internationally agreed principles. One of the main differences 
between the EU rules and those principles and standards is the maximum ratio between variable and 
fixed  remuneration,  which  only  exists  in  the  EU.  The  FSB's  fourth  progress  report 16 shows  that 
"almost  all  FSB  jurisdictions  have  fully  implemented  the  P&S  for  banks"  and  that  remuneration  is 
embedded in bank supervisory frameworks in most FSB jurisdictions. However, the FSB reports that a 
number of implementation gaps still remain. 

Globally,  there  have  been  a  number  of  relevant  developments  with  respect  to  remuneration.  These 
include, for example, the introduction in the US of new mandatory disclosure requirements for public 
companies on the ratio between the median of the annual total compensation of all employees to that 
of the chief executive officer and the recent release by US regulators of proposed new rules containing 
stricter pay rules for bankers, including longer deferral periods and clawback; the introduction in the 
UK  of tougher  requirements  for  deferral  and clawback;  or  the  2013  Swiss  referendum  on  executive 
remuneration, whereby the use of certain types of remuneration, such as severance payments, has been 
restricted,  and  where  a  maximum  ratio  between  executive  pay  and  the  company's  lowest  wage  was 
rejected.  

In  Europe,  the  Single  Supervisory  Mechanism/European  Central  Bank  took  over  supervision  of  the 
significant banks within the Banking Union, and gained competences to carry out tasks for prudential 
supervisory purposes also in the area of remuneration policies and practices17. 

Remuneration  continues  to  be  a  high  priority  on  the  international  policy  agenda,  and  the  debate  on 
remuneration  is  now  focusing  on  the  links  with  misconduct.  In  its  report  on  misconduct  risk  in  the 
banking sector18, the European Systemic Risk Board found that the number and scale of misconduct 
cases recently observed, as well as the related penalties and redress costs, mean that misconduct issues 
may  have  the  potential  to  create  systemic  risks.  The  FSB  decided  to  examine  the  case  for  further 
strengthening disincentives to misconduct also through remuneration-related tools.   

3. IMPLEMENTATION AND ENFORCEMENT  

As required by Article 161(2) CRD, this section discusses the implementation and enforcement of the 
CRD and CRR remuneration provisions. 

Following the adoption in June 2013, Member States had to transpose CRD IV into national law by 31 
December  2013,  with  the  new  rules  applying  as  of  1  January  2014.  The  transposition  checks  are 
ongoing. 

However, several trends have been already identified concerning the national transposition by Member 
States, or concerning their national supervisory practices19.   

for  Sound  Compensation  Practices  and 

their  Implementation  Standards,  available  at 

15  The  FSB  Principles 
http://www.fsb.org/what-we-do/policy-development/building-resilience-of-financial-institutions/compensation/   
16 Financial Stability Board, "Implementing the FSB Principles for Sound Compensation Practices and their Implementation 
Standards - Fourth progress report" (10.11. 2015), available at http://www.fsb.org/wp-content/uploads/FSB-Fourth-progress-
report-on-compensation-practices.pdf  
17 Council  Regulation  (EU)  No  1024/2013  of  15  October  2013  conferring  specific  tasks  on  the  European  Central  Bank 
concerning  policies  relating  to  the  prudential  supervision  of  credit  institutions,  available  at  http://eur-lex.europa.eu/legal-
content/EN/TXT/?uri=CELEX%3A32013R1024  
18  European  Systemic  Risk  Board  "Report  on  misconduct  risk 
https://www.esrb.europa.eu/pub/pdf/other/150625_report_misconduct_risk.en.pdf  
19 CRD contains a large number of national discretions and options concerning remuneration rules, which may be applied on 
the basis of national circumstances. An overview of the use by Member States of these discretions and options is available at 
http://www.eba.europa.eu/supervisory-convergence/supervisory-disclosure/options-and-national-discretions  

the  banking  sector"  (2015),  available  at 

in 

4 

 
 
 
 
 
 
                                                        
The  first issue  concerns the  Member  States'  interpretation  of  what  is  “fixed”  and  what is “variable” 
remuneration,  and  how  so-called  “role-based  allowances”  should  be  classified.  Some  institutions 
introduced such “role-based allowances” as a form of “fixed” remuneration to be able to continue to 
pay  higher  "variable"  remuneration  and  remain  compliant  with  the  limitations  imposed  on  the  ratio 
between the "fixed" and "variable" remuneration components. Upon the Commission's request, EBA 
assessed  the  use  by  institutions  of  such  allowances.  This  led  to  the  EBA  Opinion  of  15  October 
201420,  in  which  it  was  found  that  these  “role-based  allowances”  were  often  wrongly  classified  as 
“fixed” remuneration while they were in fact “variable” remuneration. Meanwhile, all Member States 
reported  that  they  have  taken  measures  to  ensure  correct  mapping  of  allowances.  On  21  December 
2015  EBA  adopted  guidelines  on  sound  remuneration  practices 21.  This  will  contribute  to  further 
harmonising remuneration practices in the EU.  

The second issue concerns the interpretation by Member States of the principle of proportionality that 
underlies  the  CRD  remuneration  rules  in  accordance  with  Article  92(2)  CRD.  Proportionality 
considerations  have  led  a  great  majority  of  Member  States  to  waive  the  application  of  certain 
remuneration  rules  to  small  and  non-complex  institutions  or  to  staff  with  low  amounts  of  variable 
remuneration. This concerns in particular the rules on deferral and pay-out in instruments, set out in 
points  (l)  and  (m)  of  Article  94(1)  CRD.  The  rules  on  deferral  and  pay-out  in  instruments  are 
evaluated in detail in the Staff Working Document SWD(2016)266, where it is found that there may 
be  a  case  for  allowing  some  degree  of  exemptions  from  the  application  of  those  rules  and  it  is 
suggested  that,  following  a  comprehensive  impact  assessment,  a  legislative  amendment  for  the 
requirements on deferral and pay-out in instruments be considered. 

4. ASSESSMENT OF REMUNERATION PROVISIONS 

Article 161(2)  CRD  mandates the  Commission  to assess the  efficiency  of  the remuneration  rules  of 
CRD  and  CRR.  The  first  part  of  this  section  (4.1)  analyses  the  appropriateness  of  the  scope  of 
application of the remuneration rules, in terms of the types of entities and individuals covered. In the 
second part (4.2), analysis of individual remuneration requirements is provided. 

4. 1. ASSESSMENT OF THE SCOPE OF APPLICATION 

4.1.1. Application of the remuneration rules to investment firms 

In accordance with Article 2 and 3(3) CRD, the remuneration rules apply not only to credit institutions 
but also to "CRR investment firms". The definition of a CRR investment firm covers a subset of firms 
subject to the MiFID22 definition.  

Investment firms have been linked to the prudential requirements for credit institutions since 199323. 
The reason for this was to ensure a level-playing field for credit institutions and investment firms that 
were  seen  to  compete  in  the  field  of  investment  services.  In  CRD  IV/CRR  the  remuneration  rules 

20 Opinion of the European Banking Authority on the application of Directive 2013/36/EU (Capital Requirements Directive) 
regarding  the  principles  on  remuneration  policies  of  credit  institutions  and  investment  firms  and  the  use  of  allowances 
(15.10.2014), 
https://www.eba.europa.eu/documents/10180/657547/EBA-Op-2014-
10+Opinion+on+remuneration+and+allowances.pdf   
21

available 

at 

sound 

remuneration 

policies 

(21.12.2015), 

Guidelines 

on 

available 

at 

 EBA 

https://www.eba.europa.eu/documents/10180/1314839/EBA-GL-2015-
22+Guidelines+on+Sound+Remuneration+Policies.pdf/1b0f3f99-f913-461a-b3e9-fa0064b1946b  
22 Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments 
amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the European Parliament and of the 
Council 
http://eur-lex.europa.eu/legal-
content/EN/TXT/?qid=1398325978410&uri=CELEX:02004L0039-20110104  
23 See the Recitals of the  Council Directive 93/6/EEC of 15 March 1993 on the capital adequacy of investments firms and 
credit institutions, available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31993L0006:EN:HTML  

93/22/EEC, 

Directive 

repealing 

available 

Council 

and 

at 

5 

 
 
 
 
 
 
                                                        
apply to all “CRR investment firms”, although for other prudential requirements in this package, such 
as  those  relating  to  own  funds  or  initial  capital,  some  types  of  investment  firms  receive  a  different 
treatment. 

An argument often made by the "CRR investment firms" is that the CRD IV remuneration rules are 
made  for  credit  institutions  and  are  unsuited  for  their  own  business  model,  said  to  be  significantly 
different  from  that  of  banks.  They  consider  therefore  that  they  should  be  exempted  from  the 
application of some of the remuneration rules.  

There  is a  very  wide  diversity  of  CRR investment  firms  and  the  different types of investment firms 
have their own concerns with respect to the remuneration rules. Some firms, where risks are said to be 
short-lived,  argue  that  the  multi-year  performance  assessment  is  not  suitable  for  them.  In  the  same 
way, some investment firms claim that the deferral periods required by CRD are not aligned with the 
time horizon of their risks and investments24.  

Investment  firms  overall  consider  that  the  Maximum  Ratio  Rule  is  not  fit  for  their  business  model. 
They  argue  that  it  is  important  that  they  can  keep  a  remuneration  model  based  predominantly  on 
variable remuneration,  which  is  not  paid  out if no  profit is  generated.  In  their  view, increased fixed 
costs,  resulting  from  a  higher  portion  of  remuneration  being  "fixed",  would  affect  their  profitability 
and  own  funds  requirements,  in  some  investment  firms  based  on  the  fixed  overheads.  Many 
investment  firms  claim  that  remuneration is their  single  highest  cost, and argue  that revenues,  often 
generated  by  commissions  and  fees,  are  highly  volatile.  In  such  case,  an  increased  fixed  pay  could 
impact on investment firms' ability to successfully face times of reduced revenues. Smaller investment 
firms claim that a high variable remuneration structure is a key factor to remain competitive vis-à-vis 
larger competitors. Those firms operating in global markets also argue that the Maximum Ratio Rule 
may  limit  their  appetite  to  operate  in  or  from  the  EU  markets.    There  is  currently  no  empirical 
evidence  to  confirm  or  refute  those  concerns,  largely  because  of  the  limited  application  of  the 
Maximum Ratio Rule by CRR investment firms.  

Under  CRR 25 ,  the  Commission  is  examining  and  will  report  on  an  appropriate  regime  for  the 
prudential supervision of investment firms (the “investment firms' review”). EBA has in this context 
called for a more proportionate and risk-based prudential regime for investment firms, including with 
respect to the remuneration rules26. The work is however still in the early stages and the information 
currently  available is  not  sufficient  to  fully  determine  whether  and  to  what  extent the differences  in 
business models and risk profiles would also justify a change of the remuneration rules for investment 
firms.  

4.1.2. Application of the remuneration rules in a group context 

In  accordance  with  Articles  92(1)  and  109  CRD,  consolidating  institutions  must  ensure  that 
subsidiaries that fall within the scope of prudential consolidation have remuneration policies that are 
consistent  with  the  group-wide  remuneration  policy  for  all  staff  and  comply  with  the  specific  CRD 
remuneration  rules  applicable  to  staff  whose  activities  have  a  material  impact  on  their  risk  profile. 
Therefore, entities that are not themselves subject to the CRD rules could indirectly be covered as a 
result of them being part of a CRD group.  

This  will  be,  for  example,  the  case  for  managers  of  undertakings  for  collective  investment  in 
transferable  securities  (UCITS)  or  of  Alternative  Investment  Funds  (AIF)  that  are  part  of  a  CRD 
group. In line with the objective of the Directive, staff members of such entities will be identified and 

24 For  the  analysis  of  the  rules  on  performance  assessment  and  deferral  in  the  case  of  credit  institutions,  please  refer  to 
Sections 4.2.1 and 4.2.5. 
25 Art 508, 493(2) and 498(2) CRR 
26 EBA Report on investment firms (EBA/Op/2015/20), available at 
https://www.eba.europa.eu/documents/10180/983359/EBA-Op-2015-20+Report+on+investment+firms.pdf 

6 

 
 
 
 
                                                        
subject  to  the  CRD  remuneration  rules  if  it  is  determined  that  their  professional  activities  pose  a 
material risk to the CRD regulated group27.    

This  has  led  to  some  concerns  from  the  UCITS  and  AIF  managers,  who  are  subsidiaries  of  CRD-
regulated  groups.  Such  fund  managers  are  already  subject  to  remuneration  rules  similar  to  those 
provided in CRD under their own sectorial legislation28 (with the most significant difference being the 
fact that the Maximum Ratio Rule is unique to CRD). EBA Guidelines29 clarify how the two sets of 
rules  should interact,  which  rules  would  take  precedence  and  under  which conditions.  For  example, 
they specify that staff of UCITS or AIF manager subsidiaries that have an impact on the risk of the 
group should be paid in the instruments of the fund. 

Some concerns were also expressed that the application of CRD rules to such subsidiaries may create 
a un-level-playing field between similar entities in and outside of a CRD-group.  As this relates mostly 
to the Maximum Ratio Rule, this is further discussed in Section 5.2 on impacts of the Maximum Ratio 
Rule on competitiveness. 

4.1.3. Application of the rules in terms of staff covered 

CRD requires institutions to have appropriate remuneration policies applicable to all staff and contains 
additional  specific  rules  concerning  the  pay-out  process  and  structure  of  the  remuneration  of  staff 
whose professional activities have a material impact on the institutions’ risk profile ("identified staff"). 
The correct identification of these staff members is an important step in ensuring the effectiveness of 
the  remuneration  rules.  Institutions  need  to  carry  out  the  identification  on  a  solo  basis  and  where 
relevant also on a consolidated and sub-consolidated basis.   

By  setting  out  clear,  harmonised  identification  criteria,  the  Commission  Delegated  Regulation  (EU) 
No  527/2014 30  aims  to  put  an  end  to  the  serious  discrepancies  in  the  approaches  followed  by 
supervisors and institutions in the past. There are criteria of a qualitative and of a quantitative nature. 
The  qualitative  criteria  are  based  on  an  assumption  that  staff  in  certain  positions  or  with  certain 
responsibilities has the capacity to take material risks for the institution. The quantitative criteria are 
based  on  the  assumption  that  high  overall  pay  levels  may  suggest  a  risk  taking  authority  of  the 
individual.  

The  objective  of  having  a  harmonization  of  the  criteria  at  EU  level  is  overall  well  received  by 
stakeholders. Institutions expressed the hope that this will result in a better level playing field and they 
find the criteria useful for setting their internal remuneration policies.  

27 Commission  Delegated  Regulation  (EU)  No  604/2014  of  4  March  2014  supplementing  Directive  2013/36/EU  of  the 
European  Parliament  and  of  the  Council  with  regard  to  regulatory  technical  standards  with  respect  to  qualitative  and 
appropriate  quantitative  criteria  to  identify  categories  of  staff  whose  professional  activities  have  a  material  impact  on  an 
institution's risk profile, available at http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=OJ%3AJOL_2014_167_R_0003  
28 Directive  2011/61/EU  of  the  European  Parliament  and  of  the  Council  of  8  June  2011  on  Alternative  Investment  Fund 
Managers  and  amending  Directives  2003/41/EC  and  2009/65/EC  and  Regulations  (EC)  No  1060/2009  and  (EU)  No 
1095/2010,  available  at  http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A32011L0061;  Directive  2014/91/EU 
of the European Parliament and of the Council of 23 July 2014 amending Directive 2009/65/EC on the coordination of laws, 
regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) 
as  regards  depositary  functions,  remuneration  policies  and  sanctions,  available  at  http://eur-lex.europa.eu/legal-
content/EN/TXT/?uri=CELEX%3A32014L0091  
29
sound 
Guidelines 

(21.12.2015), 

remuneration 

available 

policies 

 EBA 

on 

at 

https://www.eba.europa.eu/documents/10180/1314839/EBA-GL-2015-
22+Guidelines+on+Sound+Remuneration+Policies.pdf 
30 Commission  Delegated  Regulation  (EU)  No  604/2014  of  4  March  2014  supplementing  Directive  2013/36/EU  of  the 
European  Parliament  and  of  the  Council  with  regard  to  regulatory  technical  standards  with  respect  to  qualitative  and 
appropriate  quantitative  criteria  to  identify  categories  of  staff  whose  professional  activities  have  a  material  impact  on  an 
institution's risk profile, available at http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=OJ%3AJOL_2014_167_R_0003  

7 

 
 
 
 
 
                                                        
 
Concerns  were  nevertheless  raised  over  the  material  increase  in  the  number  of  identified  staff  as  a 
result of the new rules. However, despite this increase, identified staff on average still represent only a 
relatively small part of total staff (2.34% on average in 201431).   

Concerns were also raised that the identification criteria may in practice lead to the identification of 
staff  that  in  reality  does  not  have  a  material  impact  on  the  institution’s  risk  profile.  While  some   
requests  have  been  made  to  simplify  the  qualitative  criteria,  the  main  concerns  related  to  the 
quantitative criteria. It was argued that it cannot be automatically assumed that persons earning high 
remuneration have the ability to materially impact the institution's risk profile. It appears that, from the 
different quantitative criteria, the requirement according to which all staff receiving remuneration at 
the  same  level  as  risk  takers  should  be  considered  as  identified  staff  is  the  one  that  has  the  highest 
impact on the increase in number of identified staff.  

Conversely, it is important to note that the qualification under the quantitative criteria is rebuttable: it 
is indeed presumed that an earner of a certain level of remuneration is identified staff, but there is a 
possibility  for  an  institution  to  exclude that  person from  identification  if the  staff  member  in  reality 
does not have a material impact on the risk profile of the institution32.  

Some  concerns  were  also raised  that the  procedure to  secure  such exclusions would  be  lengthy  and 
cumbersome. In particular, the requirement of "exceptional circumstances", which must be met in case 
of exclusions of staff earning more than EUR 1 million, was said to be insufficiently clear. It was also 
argued  that  the  presumption  of  being  identified  staff  on  the  basis  of  the  quantitative  criteria  would 
force institutions to engage in massive exclusion procedures. According to the information available 
from the supervisory authorities, this has so far not materialised with regard to exclusions that have to 
be notified to them or that require their approval. However, it should be recognised that because of the 
recent entry into force of the Delegated Regulation (and also because of the existing national practices 
waiving  certain  remuneration  requirements),  the  experience  with  the  exclusion  procedure  is  still 
limited.  

EBA's  annual  benchmarking  reports  provide  very  useful  information  on  trends  with  respect  to  the 
identification  of  staff,  based  on  data  collected  by  competent  authorities  from  credit  institutions  and 
investment  firms.  This,  together  with  further  concrete  experience  to  be  gained  by  Competent 
Authorities and institutions, will be a good basis for a continued evaluation of the criteria.  

4.1.4. Conclusions on the scope of application 

Overall,  in  terms  of  the  scope  of  application,  the  biggest  concerns  have  been  raised  by  investment 
firms  who  consider  that  they  should  not  be  subject  to  the  same  remuneration  rules  as  banks.  Full 
conclusions cannot be drawn in isolation from the ongoing “investment firms' review”. As for the staff 
of  fund  managers  who  are  subsidiaries  of  a  CRD-regulated  group,  it  is  necessary  to  apply  CRD 
remuneration rules in the event that it is determined that they pose material risks to the group. For staff 
identification, the introduction of harmonized criteria is expected to bring benefits in terms of clarity 
and the level-playing-field. Detailed, practical aspects of the application of the identification criteria 
can be further looked into when more experience with those criteria is gained. 

31 EBA "Benchmarking of Remuneration practices at Union level and data on high earners data as of end 2014", available at 
https://www.eba.europa.eu/documents/10180/950548/Report+on+Benchmarking+of+Remuneration+and+on+High+Earners
+2013.pdf . The share of identified staff in total staff increased from 1.17 % in 2013 to 2.34 % in 2014. 
32 This could for example be the case for staff in a UCITS or AIF manager subsidiary, which may receive high remuneration 
but may have no material impact on the group’s risk profile. 

8 

 
 
 
 
 
 
 
 
 
 
                                                        
4.2. ASSESSMENT OF INDIVIDUAL REMUNERATION PROVISIONS 

4.2.1. Rules on performance assessment 

Points (a) and (b) of Article 94(1) CRD require that variable remuneration be based on a combination 
of the assessment of the individual, business unit and institution performance. Performance assessment 
needs to take into account financial and non-financial criteria, and is to be performed in a multi-year 
framework, taking into account the underlying business cycle of the institution and its business risks. 
In  general,  stakeholders  assess  these  requirements  positively 33  and  see  the  merit  of  combining 
individual with collective performance assessment, as well as financial with non-financial criteria. A 
recent  survey 34 showed  that  for  both  senior  managers  and  other  identified  staff,  compliance  and 
conduct ranked first among the performance criteria used by institutions in 2014, which constitutes a 
good  indication  that  non-financial  criteria  are  indeed  used  alongside  financial  ones  in  assessing 
performance. 

Article  94(1)(j)  CRD  requires  that  the  assessment  of  performance  for  the  purposes  of  determining 
variable  remuneration  include  an  adjustment  for  all  types  of  current  and  future  risks  and  take  into 
account  the  cost  of  the  capital  and  the  liquidity  required.  The  fact  that  the  minimum  equity-capital 
ratio  is  used  as  a  relatively  frequent  performance  criterion  suggests  an  appropriate  link  between 
variable remuneration and regulatory capital requirements.  

In  the  view  of  surveyed  supervisory  authorities,  there  has  been  progress  in  the  use  of  risk-adjusted 
performance  criteria.  However,  there  is  still  an  overreliance  on  return  on  equity  and  other  earning-
based  metrics  for  measuring  performance  to  the  detriment  of  other  criteria,  which  might  represent 
better  indicators  of  the  risk  profile  of  the  institution.  In  this  context,  it  is  noteworthy  that  the  one 
supervisory  authority  has  recently  announced  that  earnings-based  metrics  are  to  be  used  as 
performance  criteria  only  alongside  properly  weighted  non-profit  based  measures.  In  general,  more 
transparency into the sometimes complex performance assessment models used by institutions would 
facilitate effective supervision. 

All in all, the CRD IV rules on performance assessment are positively evaluated at this stage, with the 
caveat that there is room for an improved consideration of risks in the performance criteria used by 
institutions.  

4.2.2. Corporate governance 

The remuneration-related corporate governance provisions of CRD (Articles 74, 76(4), 92(2) and 95) 
concern  mainly  the  overall  responsibility  and  oversight  by  the  management  body  in  its  supervisory 
function of the general principles of the remuneration policy, the involvement of the risk committee in 
the establishment of sound remuneration policies and the requirement for “significant” institutions to 
set up a remuneration committee. 

Main industry concerns relate to the requirement to set up a remuneration committee: while there is 
general  agreement  with  the  requirement  for  “significant”  institutions  to  set  up  a  remuneration 
committee,  in  the  case  of  groups  there  is  some  resistance  towards  establishing  a  remuneration 
committee  at  the  level  of  “significant”  subsidiaries  in  addition  to  the  level  of  the  parent  institution. 
This  requirement  seems  nevertheless  justified,  for  instance  as  it  might  be  difficult  for  the  single 
remuneration  committee  at  parent level  to  fulfil its functions  across the  entire  group,  especially if  it 
contains a number of “significant” institutions, or to take account of possible local specificities.  

With regard to the effectiveness of governance provisions touching upon risk management, a recent 
survey35 revealed a number of positive assessments concerning the link between risk management and 
remuneration design. Enhancements to risk management and its linkage with remuneration processes 

33This finding may not apply to (some) investment firms. As mentioned in Section 4.1.1, some investment firms where risks 
are said to be short-lived argue that the multi-year performance assessment is not suitable for them. 
34 IFF, 2016  
35 IFF, 2016 

9 

 
 
 
 
                                                        
were  considered  a  significant  factor  in  improving  financial  stability.  In  addition,  strong  internal 
governance arrangements tend to be associated with reduced risk-taking36. 

All  in  all,  the  corporate  governance  provisions  of  CRD  touching  upon  remuneration  issues  are 
assessed positively and provide a valuable supplement for the CRD provisions focusing strictly on the 
remuneration structure, award and pay-out.   

4.2.3. Disclosure and reporting 

The  objective  of  the  disclosure  requirements  (Articles  450  CRR  and  Article  96  CRD)  is  to  allow 
stakeholders to assess whether institutions have adopted remuneration policies consistent with sound 
risk management, and supervisors to effectively review these remuneration policies.  

These provisions are in general positively assessed by industry and supervisors alike, as they provide a 
basis for gathering granular and comparable information about the institutions’ remuneration policies 
and practices. By promoting increased transparency and accountability, disclosure requirements can be 
considered a contributing factor to a better alignment of remuneration with institutions’ performance 
and risk profile. They also allow observing trends in remuneration practices.   

Some  concerns  have  been  expressed  regarding  confidentiality  when  publishing  the  number  of  high-
earners per remuneration brackets: it is alleged that in exceptional cases, where those brackets contain 
very  few  individuals  or  only  one,  identification  of  those  individuals  might  be  possible.  However, 
considering  that  high  earners  normally  have  an  important  role  to  play  in  directing  the  business  of 
institutions and in their long-term performance, transparency on their remuneration brackets serves the 
legitimate  objective  of  general  interest  of  contributing  to  sound  remuneration  policies,  which  are  in 
turn important for the soundness and stability of financial institutions.  

Some  stakeholders  (in  particular  small institutions  or certain  types  of  investment  firms)  point to the 
administrative  burden  entailed  in  recent  years  by  increasing  EU  and  national-level  disclosure 
requirements. Moreover, certain differences persist among institutions or Member States with regard 
to  the  format  and/or  level  of  granularity  of  remuneration  disclosures.  In  this  respect,  the  EBA 
Guidelines on sound remuneration policies issued in December 2015 are expected to contribute to a 
further harmonisation of the way in which remuneration disclosures are made.  

In  conclusion,  the  requirements  on  remuneration  disclosure  increase  transparency  with  regard  to 
institutions’ remuneration practices, which is crucial for their oversight and for observing trends that 
could inform the assessment of the impacts of the remuneration provisions.  

4.2.4. Guaranteed variable remuneration and severance pay 

According to Article 94(1)(d) and (e) CRD, guaranteed variable remuneration is exceptional, occurs 
only  when  hiring  new  staff  and  where  the  institution  has  a  sound  and  strong  capital  base,  and  it  is 
limited to the first year of employment. Regarding severance payments, Article 94(1)(h) stipulates that 
payments relating to the early termination of a contract reflect performance achieved over time and do 
not reward failure or misconduct. 
The  recent  EBA  benchmarking  of  remuneration  practices 37  reveals  that  the  use  of  both  sign-on 
bonuses and severance payments decreased considerably in 2014 compared to previous years in terms 
of the number of identified staff benefitting from such incentives.  In 2014, only 281 identified staff 
(0,4% of all identified staff) received sign-on bonuses, compared to around 2 274 in 2011, and only 
467 identified staff (0,7% of all identified staff) received severance payments, compared to 1 011 in 
2011. 

36 See  for  instance  the  finding  of  the  IMF  "Global  Financial  Stability  Report"  (2014)  that  the  existence  of  a  board  risk 
committee is related to less risk-taking in banks. 
37 EBA "Benchmarking of Remuneration practices at Union level and data on high earners data as of end 2014 

10 

 
 
 
 
 
                                                        
Based on these latest trends, conclusion could be drawn that the use of sign-on bonuses and severance 
pay  goes  in  the  direction  of  the  CRD  rationale  of  better  framing  the  use  of  these  forms  of 
remuneration. 

4.2.5. Deferral 

Largely  in  line  with  the  Implementation  Standards  of  the  FSB  Principles  for  Sound  Compensation 
Practices and as already provided in CRD III, Article 94(1)(m) CRD IV requires that in the case of 
identified  staff,  institutions  defer  at  least  40%  of  variable  remuneration  (or  60%  in  the  case  of  a 
particularly high amount) over a period that is no less than three to five years and is correctly aligned 
with the nature of the business, its risks and the activities of the staff member in question.  

Deferral is a key mechanism to align variable remuneration with the long-term risks and performance 
of an institution by enabling the application of malus. In addition, deferral prolongs the period during 
which variable remuneration reflects the changes in the market prices of the awarded instruments. By 
aligning the interests of identified staff with the long-term interests of shareholders, deferral prevents 
short-termism in business decisions. Some studies suggest that deferral also contributes to aligning the 
interests  of  identified  staff  with  those  of  creditors,  in  that  deferred  remuneration  has  debt-like 
characteristics:  it  is  an  unsecured  future  claim,  vulnerable  if  the  institution  underperforms  or  goes 
bankrupt38.  

Deferral  is  generally  positively  assessed  by  stakeholders  in  terms  of  ensuring  the  alignment  of 
remuneration with the long-term performance of the institution and of deterring excessive risk-taking.  

Concerns  were  nevertheless  expressed  in  relation  to  the  impact  of  the  application  of  the  deferral 
requirements  to  mid-level  staff,  which  became  identified  staff  as  a  result  of  the  recent  harmonised 
rules  on  identification.  This  concerns  mainly  staff  in  internal  control  functions,  whose  skills  are 
relatively easily transferable to other non-CRD-regulated sectors or jurisdictions. It is argued that this 
may result in difficulties in retaining such staff, who may be interested in moving into sectors where 
their pay would not be deferred. Thus, CRD entities may feel compelled to increase the remuneration 
of  such  staff  to  remain  competitive.  It  is  worth  noting  however  that,  in  accordance  with  the  EBA 
Guidelines, remuneration of staff in independent control functions should be predominantly fixed and, 
as such, a relatively small part of their total pay would be subject to deferral.  

Significant reservations also exist regarding the appropriateness of applying deferral by small and non-
complex  institutions  and  in  the  case  of  low  amounts  of  individual  variable  remuneration  (see  Staff 
Working Document SWD(2016)266 for details).  

Concerning the percentage of variable remuneration to be deferred, stakeholders tend to support the 
prescribed  percentage,  including  a  higher  deferred  portion  (i.e.  60%)  for  senior  managers  and  the 
highest paid identified staff. The average ratio of deferred to total variable remuneration of identified 
staff has increased quite significantly between 2010 and 201339 (i.e. from 55.22% to 62.99%), and it 
went slightly down in 2014 (to 62.50%)40.  The fact that already in 2010 the average ratio of deferred 
to total variable remuneration of identified staff as captured in the EBA data was above the minimum 
deferral  ratio  prescribed  by  CRD  seems  to  point  to  an  earlier  recognition  of  deferral  by  large 
institutions as an effective risk-alignment mechanism.  

Regarding the length of the deferral period, the three to five years period has generally been positively 
assessed. Nonetheless, views exist according to which in certain cases a longer deferral period, better 
aligned with the length of financial cycles, would be desirable. This would be fully in line with the 

38 See Lin Peng and Ailsa Roell  "Managerial Incentives and Stock Price Manipulation" (2009);  Uhde, André  "Risk-taking 
incentives  through  excess  variable  Compensation  Evidence  from  European  banks"  (2015).  However,  it  is  recognised  that 
remuneration is usually paid out to staff before the claims of institution's creditors are satisfied. 
39 EBA remuneration benchmarking data 
40 This evolution from 2013 to 2014 can most likely be attributed to the changes in the staff identification process, which in 
2014 led to the identification of staff previously not captured, traditionally earning lower amounts of variable remuneration 
and  in  many  jurisdictions  previously  exempted  from  the  deferral  requirement  on  the  basis  of  proportionality  (this  affected 
downwards the 2014 average deferral ratio of the Identified Staff population). 

11 

 
 
 
                                                        
Directive, which prescribes only the lower end of the applicable deferral period (at least three to five 
years) and also stipulates that the deferral period needs to be  correctly aligned with the institution’s 
nature and risks and with the staff member’s activities, therefore permitting – and even requiring – the 
introduction  of  longer  deferral  periods  when  deemed  appropriate 41 .  In  conclusion,  deferral  is  a 
successful  tool  in  aligning  the  interests  of  staff  with  the  long-term  interests  and  performance  of 
institutions, especially for larger and more complex institutions and in cases of a material portion of 
remuneration  being  variable.  The  minimum  deferral  amounts  seem  appropriate  and  the  minimum 
prescribed  deferral  period  is  in  general  positively  assessed,  although  there  are  views  that  in  certain 
cases a longer deferral period might be appropriate42. 

4.2.6. Malus and clawback 

Article 94(1)(n) CRD requires that up to 100% of the total variable remuneration of identified staff be 
subject to malus or clawback arrangements. The application of malus and clawback can be triggered 
by the financial performance of the institution or its business unit, or by individual conduct. It could 
also be triggered by potential subsequent corrections to the level of the performance and risks assessed 
when the remuneration was awarded. 
A  recent  survey 43  revealed  that  a  majority  of  industry  and  supervisors  respondents  agree  that 
introducing  ex-post  risk  adjustments  through  malus  and  clawback  reduces  risk-taking  incentives. 
Clawback,  however,  appears  to  be  rarely  used  due  to  implementation  difficulties  stemming  from 
certain  national  labour  and  contract  law  specificities  (which  may  create  an  un-level  playing  field), 
taxation uncertainties or potential legal costs. When used, it is mainly to address misconduct.  

These  findings  closely  reflect  feedback  from  the  Commission’s  stakeholder  event  and  public 
consultation,  where  most  respondents  considered  ex-post  adjustments  a  good  tool  to  limit  excessive 
risk-taking,  to  reduce  the  incidence  of  misconduct  and  to  link  remuneration  with  performance,  but 
highlighted practical difficulties in the application of clawback, and to a lesser extent of malus: a few 
respondents  argued  that  it  can  be  complicated  to  determine  to  which  instalment  malus  should  be 
applied and in which specific instances, and that the reduction or cancellation of variable remuneration 
in the current period is easier. It has to be noted nonetheless that by not applying ex-post adjustments 
to the correct performance period, the link between remuneration and performance may be eroded.  
Literature 44 suggests  that  malus  and  clawback  tend  to  be  most  beneficial  in  large,  systemically-
important institutions, as they help mitigate the “too-big-to-fail” distortion by ensuring that risk-takers 
are  subject  to  financial  losses  in  case  of  failure  regardless  of  the  existence  of  deposit  insurance  or 
government guarantees.  

Despite the generally positive assessment of ex-post adjustments tools, the practical use of malus and 
especially  clawback  appears  to  remain  low.  This  is  confirmed  by  the  latest  EBA  Remuneration 
Benchmarking report, which found that in 2014 only 0.49% of the outstanding deferred remuneration 
was  subject  to  ex-post  risk-adjustments  (compared  to  0.40%  in  2013  and  2.17%  in  2012).  This 
suggests that the use of ex-post adjustments remains low. 
From a conduct angle the perspective is similar: as the latest FSB Compensation report45 notes, while 
there  seems  to  be  agreement  that  the  tools  to  ensure  the  alignment  of  remuneration  with  conduct 
(essentially deferral, malus and clawback) are in place, there is scarce information on the actual use of 
malus and clawback available at the moment.   

41 In this respect we note the UK authorities’ initiative to tailor the deferral regime by imposing a 7-year deferral period for 
senior managers. 
42 This conclusion may not apply to (some) investment firms. As mentioned in Section 4.1.1, some investment firms would 
favour a shorter deferral period. 
43 IFF, 2016 
44
 J. 

Thanassoulis,  M. 

"Bankers’ 

excessive 

available 

Tanaka 

(2015), 

risk" 

and 

pay 

at 

http://www.bankofengland.co.uk/research/Documents/workingpapers/2015/swp558.pdf  
45 Financial Stability Board, "Implementing the FSB Principles for Sound Compensation Practices and their Implementation 
Standards - Fourth progress report" (10.11. 2015), available at http://www.fsb.org/wp-content/uploads/FSB-Fourth-progress-
report-on-compensation-practices.pdf 

12 

 
 
 
                                                        
In conclusion, malus and clawback are generally positively assessed as useful mechanisms in terms of 
limiting  excessive  risk-taking  and  misconduct,  and  linking  remuneration  with  performance. 
Admittedly, the practical use of these ex-post mechanisms to date remains low.  

It is also noteworthy that, although ex-post adjustments are essentially applied as a reactive tool once 
the  excessive  risk-taking  or  misbehaviour  has  materialised,  the  mere  existence  of  an  ex-post 
adjustment frame properly communicated to staff promotes accountability and functions to a certain 
extent as a deterrent of excessive risk-taking and misconduct46. 

4.2.7. Pay-out in instruments 

Broadly  in  line  with  the  Implementation  Standards  of  the  FSB  Principles  for  Sound  Compensation 
Practices and as already provided for in CRD III in a similar way, Article 94(1)(l)  CRD IV requires 
institutions  to  pay  at  least 50%  of  any  variable remuneration  in  financial instruments.  Two  types  of 
instruments are eligible for this purpose: (i) shares or equivalent ownership instruments, subject to the 
legal  structure  of  the  institution  concerned,  or  share-linked  instruments  or  equivalent  non-cash 
instruments, in the case of non-listed institutions; (ii) bail-in-able instruments adequately reflecting the 
credit quality of an institution as a going concern in the meaning of Commission Delegated Regulation 
(EU) No 527/2014.  

According to EBA data, there has been an upward trend in the average use of pay-out in instruments in 
the years following the entry into force of CRD III: on average 55.69% of the variable remuneration of 
identified staff was paid out in instruments in 2014, compared to 48.50% in 2010. Evidence shows that 
institutions predominantly use the first category of instruments for the purposes of paying-out variable 
remuneration, with bail-in-able instruments being used by relatively few institutions. 

Pay-out  in  shares  or  equity-based  instruments  is  effective  in  aligning  the  interests  of  identified staff 
with those of the institution’s owners. Coupled with deferral and additional retention periods during 
which  the  staff  member  cannot  access  or  sell  of  the  awarded  instruments,  pay-out  in  equity 
instruments  helps  to  counter  potential  short-termism  in  identified  staff’s  actions  and  ensures  the 
alignment of their remuneration with the long-term risks and performance of the institution. In light of 
these considerations the effectiveness of pay-out in instruments is generally positively assessed, with 
the notable exception of staff with non-material levels of variable remuneration and of small and non-
complex  institutions,  for  which  it  can  be  costly  and  cumbersome  to  set  up  and  valuate  instruments 
appropriate for the purposes of variable remuneration (see Staff Working Document SWD(2016)266 
for details).  

Moreover, arguments were made that pay-out in equity instruments does not ensure alignment with the 
broader interests of society as a whole, focusing too much on the interests of shareholders. It is worth 
noting  however  that  this  effect  is  mitigated  through  malus  and  clawback,  which  align  remuneration 
with taxpayers’ interests by ensuring that Identified staff's variable remuneration is adjusted in case of 
failure, regardless of the existence of deposit insurance or government guarantees. Moreover, the use 
of bail-in-able debt instruments helps to ensure alignment with the interests of creditors.  

Another  aspect  often  raised  by  listed  institutions  is  the  fact  that  they  are  not  allowed  to  use  share-
linked instruments as an alternative to shares for the purposes of meeting the requirement of Article 
94(1)(l)CRD. They are concerned about being limited to awarding remuneration in shares, which can 
be  subject  to  restrictions  in  certain jurisdictions,  can  lead to  dilution of  voting rights  of  the  existing 
shareholders when new shares are issued, or can be related to operational difficulties associated with 
repeatedly paying-out in shares (e.g. it may invite speculation, when market players are aware that the 
institution  would  have  to  acquire  a  certain  amount  of  shares  to  award  remuneration  to  its  staff). 
Moreover, share-linked instruments, when they track the value of shares, achieve the same prudential 
objective of risk-alignment as shares (see Staff Working Document SWD(2016)266 for details). This 
argumentation  is  in  line  with the  EBA  Opinion,  which  recommends  that  CRD  be  amended  so  as  to 

46 IFF, 2016 

13 

 
 
 
                                                        
allow  listed  institutions  to  use  share-linked  instruments  for  the  purposes  of  their  variable 
remuneration.  

Subject  to  this  adjustment  and  to  a  proportional  application  of  the  rule  and,  as  required  by  CRD, 
implemented in conjunction with deferral, retention and ex-post adjustments, the requirement to pay-
out  in  instruments  will  continue  to  represent  an  effective  mechanism  to  link  remuneration  with  the 
long-term performance of the institution. 

4.2.8. The Maximum Ratio Rule 

Background 

Since  CRD  III,  credit  institutions  and  investment  firms  are  required  to  ensure  that  there  is  an 
appropriate balance between the fixed and variable components of the total remuneration of identified 
staff 47.  Fixed  remuneration  should  reflect  the  relevant  professional  experience  and  organisational 
responsibility  of  staff,  and  variable  a  sustainable  and  risk  adjusted  performance,  as  well  as 
performance  in  excess  of  that  required  under  the  terms  of  employment.  Fixed  pay  must  represent  a 
proportion that is sufficiently high to allow the possibility of paying no variable remuneration at all. 
Under CRDIII, the decision on the optimal level of the ratio was left to individual institutions and the 
scrutiny of supervisors. CRD IV48 upheld the requirements, but in addition it set the maximum ratio of 
variable to fixed remuneration at 100% (the ' Maximum Ratio Rule '). Member States have discretion 
to  allow  increasing  the  ratio  to  up  to  200%49 with  shareholders'  approval50;  to  allow  a  discount  of 
maximum 25% of the variable component to encourage the long-term deferral of instruments51; or to 
impose stricter ratios below 100%52.  

It is very early to appropriately assess in full the impact of the Maximum Ratio Rule. The feasibility of 
appropriately assessing the impact of the Maximum Ratio Rule is strongly affected by the fairly recent 
entry  into  force  of  the  rule  and  its  still  limited  application.  While,  according  to  the  Directive,  the 
Maximum Ratio Rule had to be applied to remuneration awarded for services provided or performance 
from  the  year  2014  onwards,  this  has  not  always  been  the  case  due  to  delays  in  transposition. 
Moreover,  some  Member  States,  referring  to  the  principle  of  proportionality,  excluded  from  the 
application  of  the  Maximum  Ratio  Rule  certain  institutions  or  certain  types  of  subsidiaries,  such  as 
UCITS and AIF managers. Moreover, many institutions used so-called “role-based allowances”, often 
incorrectly  mapped  as  fixed  pay  instead  of  variable  pay53,  thereby  distorting  the  calculation  of  the 
ratio. The analysis is also affected by the fact that harmonized rules on staff identification entered into 
force in 2014. As a result, statistics about actual remuneration ratios from before and after the entry 
into  force  of  the  Maximum  Ratio  Rule  concern  a  somewhat  different  population.  To  date,  granular 
EBA remuneration benchmarking data are available only for 2014.   

It is important to keep in mind that the below represents the findings  to date,  based on limited data 
available  given the short period  of  time  that the rule is in force, and the  limited  experience  with its 
application. 

The  Maximum  Ratio  Rule  does  not  impact  directly  on  the  level  of  pay54,  and  the  scope  of  staff 
affected  by  the  rule  is  limited.  Identified  staff  represent  on  average  2.34%  of  all  staff,  and  among 

47 Paragraph 23(1) of Annex V of Directive 2010/76/EU  
48 Article 94(1)(g), 94(1)(f), Rec. 64 and 65 CRD 
49 Implemented by all Member States, except BE, SI, SE and RO 
50 At EU level, more than half of institutions (53%) in terms of the balance sheet total, and 3% of institutions in terms of the 
number of institutions have secured an approval of a higher ratio 
51 8 Member States did not avail of this option  
52 3 Member States  
53 Following the EBA Opinion all Member States have taken measures to ensure that remuneration components are correctly 
mapped as fixed or variable, but these measures will in many cases be effective only from performance year 2015. 
54 Case C-507/13, available at 

14 

 
 
 
 
 
                                                        
 
those, many traditionally do not receive variable pay above the CRD maximum. In 2013, before the 
rule  was  introduced,  out  of  140  analysed  banks  17  reported  average  variable  pay  of  their  staff  in 
excess of 200%, and 22 institutions had a higher ratio in at least one business line55.   

Furthermore, the impact of the Maximum Ratio Rule will be felt by institutions to a different degree. It 
will depend on the jurisdiction they operate in (some jurisdictions traditionally have a “bonus” culture 
with  high  levels  of  variable  remuneration,  in  others  variable  remuneration  is  much  less  common  or 
important),  as  well  as  on  their  business  model  (some  “conservative”  credit  institutions  may  use 
predominantly  fixed  remuneration  while  certain  other  institutions  may  rely  heavily  on  variable 
remuneration). 

Trends on levels of remuneration and its components  

According  to  the  EBA  remuneration  benchmarking  data,  the  average  absolute  amount  of  variable 
remuneration per identified staff has decreased over the last years. It dropped from EUR 269 286 in 
2010 to EUR 121 589 in 2014. The most significant drops of the average absolute amount of variable 
remuneration took place in 2011 and 2014 (28% and 31% respectively). 

The  average  absolute  amount  of  fixed  remuneration  per  identified  staff  has  increased  over  the  last 
years (with the exception of a slight decrease of around 1% in 2013). It increased from EUR 131 514 
in 2010 to EUR 185 692 in 2014. The most significant increases of the average absolute amount of 
fixed  pay  took  place in  2011  and  2012  (15% and  14  %  respectively)  and to  a lesser  extent  in  2014 
(9%). 

The  increase  in  fixed  remuneration  was  on  average  less  important  than  the  decrease  of  variable 
remuneration.  The  average  absolute  variable  remuneration  of  an  identified  staff  in  2014  was  EUR 
174 697 lower than in 2010, while the average fixed remuneration in 2014 was EUR 54 178 higher 
than in 2010. Between 2013 and 2014, there was a 31% decrease of the variable pay and a 9% increase 
of the fixed pay per identified staff. 

Also,  the  importance  of  variable  remuneration  compared  to  fixed  remuneration  decreased.  While 
variable remuneration on average exceeded twice the fixed salary in 2010, in 2014 it represented on 
average 65% of fixed remuneration (although in single cases it could even reach 3 058%, owing to the 
application of waivers under national law).  

The average absolute levels of total remuneration showed a consistent, downward tendency, with the 
biggest drops in 2011 and 2014 (14% and 12% respectively).  

http://curia.europa.eu/juris/documents.jsf?pro=&lgrec=en&nat=or&oqp=&lg=&dates=&language=en&jur=C&cit=none%25
2CC%252CCJ%252CR%252C2008E%252C%252C%252C%252C%252C%252C%252C%252C%252C%252Ctrue%252Cf
alse%252Cfalse&num=C-507%252F13&td=%3BALL&pcs=Oor&avg=&page=1&mat=or&jge=&for=&cid=521127  
55 EBA benchmarking data 

15 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                                                                                                                                             
The  details  are  presented  in  the  table  below  (numbers  in  brackets  indicate  an  increase  or  decrease 
compared with a previous year): 

No of 
identified 
staff 

Ratio 
variable to 
fixed for 
identified 
staff 

Average 
level of 
absolute 
fixed per 
identified 
staff 

28 221 

204,76% 

131 514 

Average 
level of  
absolute 
variable  
per 
identified 
staff 
269 286 

Average 
level of  
absolute 
total pay  
per 
identified 
staff 
400 800 

32 648 

127,99% 

151 409 

193 785 

345 194 

(+15%) 

(-28%) 

(-14%) 

Sum of 
fixed pay 
for all 
identified 
staff 

Sum of 
variable 
pay for all 
identified 
staff 

Sum of 
total pay 
for all 
identified 
staff 

3 711 454 
537 

7 599 510 
462 

11 310 964 
999 

4 943 187 
088 

6 326 699 
323 

11 269 886 
411 

35 996 

108,74% 

172 379 

187 441 

359 820 

6 204 956 
466  

6 747 141 
336 

12 952 097 
801 

(+14%) 

(-3%) 

(+4%) 

34 060 

104,27%  

170 164   

177 431 

347 595 

5 795 794 
360 

6 043 294 
697 

11 839 089 
057 

(-1%) 

(-5%) 

(-3%) 

62 787 

65,48% 

185 692 

121 589 

307 281 

11 659 016 
123 

7 634 227 
752 

19 293 243 
875 

(+9%) 

(-31%) 

(-12%) 

0
1
0
2

1
1
0
2

2
1
0
2

3
1
0
2

4
1
0
2

Source: EBA remuneration benchmarking report 2014 (figure 22); EBA remuneration benchmarking report 2013 (Figure 21) 

Those are general trends, calculated as averages for all jurisdictions, different types of institutions and 
identified staff covered by the Maximum Ratio Rule. Therefore, some deviations must be accounted 
for, depending on the jurisdiction, the sample of institutions (e.g. large, small, internationally active) 
or business area.  

Despite  the  decrease  of  the  average  absolute  amount  of  variable  remuneration  per  identified  staff 
when  calculated  on  average  for  all  business  areas,  in  investment  banking  variable  pay  saw  a  +62% 
increase  between  2011  and  2013,  to  then  go  down  in  2014  and  reach  a  level  comparable  to  that  of 
2011  (+2%).  Investment  banking  is  also  the  only  business area  which  noted  an  increase in  absolute 
amount of fixed remuneration per identified staff already between 2012 and 2013 (+46%), and which 
noted an increase in total pay between 2011 and 2014 (despite a -13% drop between 2013 and 2014, it 
is still 40% higher than in 2011).  

Despite  the  general  increase  between  2013  and  2014  of  the  average  absolute  amount  of  fixed 
remuneration per identified staff, when calculated for all business areas, in retail banking it went down 
(-14%).   

Asset  management  was  the  only  business  area,  where  between  2013  and  2014 the  average  absolute 
amount of variable remuneration per identified staff, as well as the average absolute amount of total 
remuneration per identified staff actually went up (+3% and +7% respectively), although they are both 
lower than in 2011 (-16% and -4% respectively)56. 

56 See  also  New  Financial  "Feeling  the  squeeze?  What's  happening  with  pay  at  investment  banks  and  asset  managers" 
(2015): Over the past decade, pay in asset management companies, which in 2004 was just over half of that in investment 
banks, has now almost caught up, and may soon overtake it. 

16 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
The details are presented in the table below (arrows indicate an increase or decrease compared with a 
previous year or within the years indicated): 

Absolute Fixed  
per identified staff 

Absolute Variable 
per identified staff 

Absolute Total  
per identified staff 

g
n
i
k
-
n
a
b
t
n
e
m
t
s
e
v
n
I

g
n
i
k
n
a
b
l
i
a
t
e
R

t
n
e
m
e
g
a
n
a
m

t
e
s
s
A

7
5
s
a
e
r
a

s
s
e
n
i
s
u
b
l
l

A

2011 

2012 

2013 

2014 

175 
095 
na 

185 
668 
 

271 
383 
 

365 
975 
 

2011 

2012 

2013 

2014 

998 
24 
na 

134 
445 
 

117 
726 
 

100 
854 
 

2011 

2012 

2013 

2014 

170 
845 
na 

192 
710 
 

172 
952 
 

191 
617 
 

2011 

2012 

2013 

2014 

2011
-
2014 

 

2011
-
2014 

 

2011
-
2014 

 

2011
-
2014 

2011 

2012 

2013 

2014 

318 
625 
na 

333 
225 
 

518 
794 
 

325 
318 
 

2011 

2012 

2013 

2014 

42 
076 
na 

47 
119 
 

30 
917 
 

30 
554 
 

2011 

2012 

2013 

2014 

229 
457 
na 

248 
328 
 

186 
920 
 

191 
974 
 

2011 

2012 

2013 

2014 

151 
409 
na 

172 
379 
 

170 
164 
 

185 
692 
 

 

193 
785 
na 

187 
441 
 

177 
431 
 

121 
589 
 

2011
-
2014 

 

2011
-
2014 

 

2011
-
2014 

 

2011
-
2014 

 

2011 

2012 

2013 

2014 

493 
720 
na 

518 
893 
 

790 
177 
 

691 
293 
 

2011 

2012 

2013 

2014 

141 
900 
na 

181 
564 
 

148 
634 
 

131 
408 
 

2011 

2012 

2013 

2014 

2011-
2014 

 

2011-
2014 

 

2011-
2014 

400 
302 
na 

441 
038 
 

359 
872 
 

383 
591 
 

 

2011 

2012 

2013 

2014 

345 
194 
na 

359 
820 
 

347 
595 
 

307 
281 
 

2011-
2014 

 

Source: EBA remuneration benchmarking report 2014 (figure 51) and EBA remuneration benchmarking report (figure 34) 

When reading those trends, it is worth noting that the increase of the average absolute levels of fixed 
pay  may  have  been  exacerbated  by  the  fact  that  after  the  introduction  of  harmonised  rules  on  staff 
identification, more persons with traditionally higher portion of fixed pay have been included in the 
sample.  On  the  other  hand,  the  decrease  of  average  absolute  levels  of  variable  pay  could  be  also 
attributed to a decrease of bonus pools that could result, for example, from lower levels of profits and 
trading revenue of institutions58. Also, an increase in the fixed portion of remuneration is not specific 
to the EU, and has been observed in several non-EU jurisdictions in 2014 compared to 201159 (see also 
Section 5.2). 

57 Including other than retail banking, investment banking and asset management 
58 McLagan ""Review of the Reward environment in the Banking  industry" (2015): Bonus pool per capita in respect of the 
2014 performance year has declined by 40% since 2009; IFF, 2016: Roughly 75% of respondents confirmed that the bonus 
pool is smaller than it used to be; New Financial "Taking stock on pay: 10 things we know (and don't know) about pay at 
investment banks and asset managers" (2016): Based on a sample of six banks, bonus pools shrank  by 31% between 2010 
and 2014. 
59 FSB  "Implementing  the  FSB  Principles  for  Sound  Compensation  Practices  and  their  Implementation  Standards.  Fourth 
Progress Report" (2015), available at http://www.fsb.org/wp-content/uploads/FSB-Fourth-progress-report-on-compensation-
practices.pdf 

17 

 
 
 
 
 
                                                        
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
In conclusion, it is acknowledged that the ratio of variable to total remuneration has decreased and the 
ratio  of  fixed  to  total  remuneration  has  increased.  However,  these  evolutions  have  already  begun 
several years before the introduction of the Maximum Ratio Rule. There are elements other than the 
Maximum  Ratio  Rule  that would  impact  on the levels  and  proportions  of remuneration  components 
(for example financial performance, profitability, general prudential requirements). Nonetheless, it is 
likely  that  in  certain  individual  cases  the  maximum  ratio  has  indeed  led  to  a  shift  from  variable  to 
fixed remuneration. 

The impacts of the Maximum Ratio Rule on individual incentives for excessive risk-taking behaviour, 
conduct and fixed costs of institutions are discussed in Section 5.1 on financial stability. The impacts 
of the Maximum Ratio Rule on competitiveness and staff working in subsidiaries established outside 
the  EEA  of  parent  institutions  established  within  the  EEA  are  discussed  in  Sections  5.2  and  5.3 
respectively. 

5.  IMPACTS  OF  THE  MAXIMUM  RATIO  RULE  ON  FINANCIAL  STABILITY, 
COMPETITIVENESS  AND  STAFF  WORKING  EFFECTIVELY  AND  PHYSICALLY  IN 
SUBSIDIARIES  ESTABLISHED  OUTSIDE  THE  EEA  OF  PARENT  INSTITUTIONS 
ESTABLISHED WITHIN THE EEA 

Article 161(2) CRD requires that the review of the provisions on remuneration analyses the impact of 
the Maximum Ratio Rule on financial stability. It also requires the assessment of the efficiency of all 
remuneration  rules.  As  the  effects  of  the  Maximum  Ratio  Rule  on  individual  incentives  for  taking 
excessive  risk  or  engaging  in  misconduct  are  closely  related  to  the  overall  objectives  of  financial 
stability, this is discussed together with the impacts of the rule on the cost flexibility and profitability 
of institutions in Section 5.1. 

5.1. IMPACT ON FINANCIAL STABILITY 

5.1.1. Impact on incentives for excessive risk-taking behaviour and conduct 

The  Maximum  Ratio  Rule  was  introduced  as  a  form  of  a  behavioural  safeguard,  aimed  to  curb  the 
excessive  risk-taking  incentives60,  which  were  seen  to  be  induced  by  a  high  proportion  of  variable 
remuneration.  Under  CRD  III,  supervisors  had  a  difficult  task 61  of  screening  out  undesirable 
remuneration policies and the approaches of institutions to an “appropriate balance” between variable 
and  fixed  remuneration  varied.  Some  academics  and  regulators  recommended  a  clear  regulatory 
maximum ratio62. This was expected to substantially ease the task of the supervisors and harmonise 
practices. Some also expected that the rule could even  help attract talented staff, for example to risk 
management functions, by reducing the pay wedge between business and risk management staff.  

The Maximum Ratio Rule is subject to criticism by part of industry, some Member States and some 
academics63,  who  claim  that  increased  reliance  on  fixed  pay,  not  determined  on  the  basis  of  risk-
adjusted performance, may adversely affect the alignment of staff’s incentives with the interests of the 

60 Rec 65CRD 
61 Johnston in "Preventing the next financial crisis? Regulating Bankers' pay in Europe" (2014) calls it even an "impossible 
task" 
62 Final  Report  of  the  High-level  Expert  Group  on  reforming  the  structure  of  the  EU  banking  sector  Chaired  by  Erkki 
Liikanen (2012), available at http://ec.europa.eu/finance/bank/docs/high-level_expert_group/report_en.pdf; EBA and ESMA 
presentations  at  the  Workshop  on  Banks’  Remuneration  Rules  (CRDIII)  "Are  they  implemented  and  do  they  work  in 
practice?" 
http://www.europarl.europa.eu/RegData/etudes/workshop/join/2012/464465/IPOL-
(2012), 
ECON_AT(2012)464465_EN.pdf   
63 Murphy "Regulating banking bonuses in the European Union: a case study in unintended consequences"(2013); Ferrarini 
"CRDIV and the Mandatory Structure of Bankers' Pay" (2015); Dittrich, Statter "Regulating bankers pay: Incentive contracts 
and  non-binding  salary  caps"  (2015),  available  at  http://www.sole-jole.org/2015Staedter.pdf;    Randall,  Lu  "Capping  of 
bankers' 
at 
https://www.kluwerlawonline.com/document.php?id=LEIE2015023&PHPSESSID=qhe5ndb9kek4nr8gtimpkj7a97  

Council"(2015), 

Parliament 

C-507/13 

bonuses? 

available 

available 

Case 

and 

UK 

at 

v. 

18 

 
 
 
 
 
 
 
 
 
                                                        
firm and society, dis-incentivise individual effort, discourage staff to take “good” risks, or even create 
incentives to take more "bad" risks. Other industry stakeholders and academics suggest, however, that 
the Maximum Ratio Rule may help influence conduct of staff and curb excessive, bonus-driven risk-
taking behaviour.  

According to certain estimates, the Maximum Ratio Rule could reduce the average bank’s risk level by 
16-48%64.  IMF65 analysis  suggests  that  the  Maximum  Ratio  Rule  can  in  some  cases  eliminate  the 
incentive for risk shifting by reducing the manager’s expected payoff and therefore ensuring that the 
risky project is not undertaken. But, it suggests that those effects may be undone if banks respond by 
increasing  their base  pay.  In  a  recent  survey66,  the  views  of  institutions  in the  sample  were  divided. 
Suggestions were made that it may also depend on the cultural background. Staff itself does not seem 
to consider that more fixed than variable pay has an impact on their motivation or risk-taking (neither 
to take more, nor to take less risk)67.  

Arguments  have  also  been  advanced  that  the  Maximum  Ratio  Rule  will  limit  the  proportion  of  the 
remuneration, to which other remuneration tools such as deferral, pay-out in instruments,  malus and 
clawback can be applied. Those remuneration tools are aimed at aligning remuneration with the long 
term risks of an institution, and at countering and penalising misbehaviour. Two observations need to 
be  made  in  this  respect.  Firstly,  available  data  on  the  use  of  those  tools  suggests  that  the  variable 
remuneration  that  can  be  awarded  within  the  limits  imposed  by  the  Maximum  Ratio  Rule  can 
accommodate a much higher use of those remuneration tools (see Section 4.2.6). This is especially the 
case for malus and clawback, which remain largely untested in the EU and globally68. Secondly, it is 
worth noting that ex-post adjustments do not suffice as a sole tool to mitigate adverse risk incentives 
or  misconduct.  While  their  mere  existence  might  function  to  some  extent  as  a  deterrent,  they  are 
essentially  applied  as  a  reactive  tool,  once  the  damage  resulting  from  the  excessive  risk  or 
misbehaviour has already materialised.   

Given  the  recent  introduction  of  the  Maximum  Ratio  Rule  and  the  limited  experience  with  its 
application, it is very early to draw  clear conclusions on the impact of the Maximum Ratio Rule on 
curbing  incentives  for  excessive  risk-taking  behaviour.  This  has  been  indeed  recognised  by  some 
supervisors.  It  also  cannot  be  concluded  that  the  Maximum  Ratio  Rule  has  a  negative  effect  on  the 
effectiveness of other remuneration rules in tackling misconduct.  

5.1.2. Impact on fixed costs and profitability  

Concerns have been expressed that a relative raise in fixed pay, which is believed to follow from the 
Maximum  Ratio  Rule,  increases  institutions'  fixed  costs  and  thus  limits  their  cost  flexibility.  This 
would increase their vulnerability to business cycles, may have a negative impact on their regulatory 
capital ratios and profitability, and thus may have an adverse effect on financial stability.  

As a preliminary point, it is noted that the implementation of the Maximum Ratio Rule by institutions 
is uncomplicated, easy and does not create additional administrative costs69. 

64

 Jokivuolle,  Keppo,  Yuan 

"Bonus 

caps,  deferrals  and  bankers' 

risk-taking" 

(2015), 

available 

at 

http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/BoF_DP_1505.pdf  
65 IMF "Global financial stability report" (2014), available at https://www.imf.org/external/pubs/ft/gfsr/2014/02/pdf/c3.pdf  
66 IFF, 2016 
67 IFF, 2016 
68 FSB  "Implementing  the  FSB  Principles  for  Sound  Compensation  Practices  and  their  Implementation  Standards.  Fourth 
Progress Report" (2015), available at http://www.fsb.org/wp-content/uploads/FSB-Fourth-progress-report-on-compensation-
practices.pdf  
69IFF,  2016;  Opinion  of  the  European  Banking  Authority  on  the  application  of  the  principle  of  proportionality  to  the 
at 
in 
remuneration 
https://www.eba.europa.eu/documents/10180/983359/EBA-Op-2015-
25+Opinion+on+the+Application+of+Proportionality.pdf 

(21.12.2015), 

2013/36/EU 

provisions 

paragraph 

Directive 

available 

26, 

19 

 
 
 
 
 
 
 
 
                                                        
When assessing the impact of the maximum ratio on institutions' cost flexibility, it is first worth noting 
that the remuneration of identified staff – i.e. staff whose remuneration structure risks being affected 
by  the  Maximum  Ratio  –  represents  only  a  small  percentage  of  the  total  administrative  costs  of 
institutions.  According  to  estimates  by  EBA,  in  most  of  the  institutions  examined  the  total  variable 
remuneration of identified staff was in 2014 between 1% and 2% and the total fixed remuneration was 
below 5% of their total administrative costs70. 

In a recent survey71, surveyed institutions expressed mixed views as to whether the Maximum Ratio 
Rule would actually affect their fixed costs. EBA found that for most of the institutions examined the 
increase  in  fixed  costs  from  2013  to  2014  (i.e.  the  first  year  that  the  Maximum  Ratio  Rule  was  in 
force) was very small72. Other sources have suggested in a similar way that the impact of the variable-
to-fixed  shift,  allegedly  resulting  from  the Maximum  Ratio  Rule,  on  the fixed  cost  base  of  sampled 
institutions, would not be material73.  

It is worth noting that the extent to which institutions can reduce their total cost base by reducing the 
variable remuneration should not be overstated: such a reduction would only have a limited effect on 
the  total  remuneration  costs  and  an  even  more  limited  effect  on  their  total  administrative  costs.  As 
shown  by  EBA's  analysis,  in  most  of  the  institutions  examined  the  total  amount  of  variable 
remuneration  of  identified  staff  accounts  for  only  1%  to  10%  of  the  total  remuneration  costs  in 
2014and between 1% and 2% of their total administrative costs. The extent to which institutions can 
reduce their  total  cost  base  by  reducing  the  variable remuneration  of identified staff  was  even  more 
limited before 2014 (and the entry into force of the RTS on identified staff)74.    

As  mentioned  in  Section  5.1.1,  arguments  are  advanced  that  the  Maximum  Ratio  Rule  limits  the 
portion  of  remuneration  to  which  malus  and  clawback  can  be  applied,  as  means  of  adapting 
institutions’ costs in case of a downturn event. However, available data indicate that the current levels 
of variable remuneration can easily accommodate a much higher use of those mechanisms. Moreover, 
at global institution level, total variable remuneration of identified staff to which malus and clawback 
can be applied has actually gone up following the increase of the number of identified staff. Therefore 
globally the basis for institutions to exercise flexibility has actually increased.  

Fears have been expressed that higher fixed remuneration does not allow firms to align remuneration 
with  the  firm's  cycle,  and  thus  they  may  be  forced  to  lay  off  staff  in  difficult  times.  As  explained 
above,  there  is  no  evidence  that  the  Maximum  Ratio  Rule  would  lead  to  a  material  loss  of  cost 
flexibility. Also, if necessary, even legally fixed components can be subject to renegotiation.  

With respect to the impact of the maximum ratio on institutions' profitability, it is worth noting that 
between  2013  and  2014,  all  in  all,  the  profitability  of  institutions  remained  stable  besides  a  few 
institutions that showed material changes75. 

In the same way as fixed remuneration, variable pay also reduces the institution's net profit that could 
be  otherwise  retained  or  distributed  as  dividends.  Variable  remuneration  nevertheless  has  the 
advantage  that  it  is  linked  with  performance  and  can  be  adapted  accordingly.  However,  in  practice 
there are still cases where despite a decrease of profits or even material losses, bonuses were awarded, 

70 EBA "Benchmarking of Remuneration practices at Union level and data on high earners data as of end 2014".    
71 IFF, 2016 
72 EBA "Benchmarking of Remuneration practices at Union level and data on high earners data as of end 2014".  
73 Autonomous (Stalmann, Costello)  "Bonus cap versus bowler hat" (2013) estimates that in investment banking a shift of 
variable remuneration expenses to fixed remuneration expenses could lead to 4% of the institution's total cost base becoming 
less flexible (in case of the 200% Maximum Ratio), or 9% (in case of the 100% Maximum Ratio); New Financial "Feeling 
the  squeeze?"  (2015),  available  at  http://newfinancial.eu/wp-content/uploads/2015/02/Feeling-the-squeeze-July-2015-
updated.pdf: estimates that raising fixed remuneration could lead to an increase of bank's fixed costs by 1%.  
74 EBA "Benchmarking of Remuneration practices at Union level and data on high earners data as of end 2014".    
75 EBA "Benchmarking of Remuneration practices at Union level and data on high earners data as of end 2014" 

20 

 
 
 
 
  
 
 
 
                                                        
or else bonuses were awarded above the amounts of dividends (or even they were awarded where no 
dividends were paid)76.   

For  assessing  the  possible  impact  of  the  maximum  ratio  rule  on  institutions’  profitability,  it  is  also 
relevant to compare the level of fixed remuneration with institutions’ net profits. According to EBA, 
in  2014 the  total fixed remuneration cost  of identified  staff  was  only  a fraction of the  net  profits  of 
institutions on an aggregate basis.  EBA estimates show in this respect that for the analysed sample of 
institutions looked at on an aggregate basis, total fixed remuneration costs of identified staff would be 
EUR  10.6  billion,  compared  to  EUR  53.2  billion  net  profits77.  A  similar  finding  comes  from  other 
estimates, which suggest that even if institutions were to double the fixed pay for their identified staff, 
this could create a risk for a profit-operating firm to start operating loss only in very rare and extreme 
scenarios. Even in those scenarios, the institution can entirely prevent this risk from materialising if it 
pays out no variable remuneration78.  

With  respect  to  the  impact  of  the  maximum  ratio  on  institutions'  own  funds,  EBA's  investigation 
suggests that there is no reason to assume that increased fixed pay could significantly contribute to a 
reduction of own funds, even in an adverse scenario, since for most of the examined institutions fixed 
remuneration of identified staff accounts for only 1% of their own funds79.  

The above taken on balance, considering the recent introduction of the maximum ratio and the limited 
experience with its application, it can be carefully considered that the assertions over the detrimental 
impacts of the Maximum Ratio Rule on cost flexibility and profitability of credit institutions are not 
substantiated.  

5.2. IMPACT ON COMPETITIVENESS  

Article  161(2)  CRD  calls  for  a  review  of  the  potential  impacts  of  the  Maximum  Ratio  Rule  on 
competitiveness. 

Criticism  has  been  voiced that  the  Maximum  Ratio  Rule  would  reduce  institutions'  ability  to  attract 
and retain talented staff against competitors in non-EEA jurisdictions, or non-CRD-regulated business 
areas where skills are fairly transferable (e.g. standalone hedge funds, private equity firms or UCITs, 
fin-tech companies).  

Concerns  about  the  impacts  of  Maximum  Ratio  Rule  are  fuelled  by  the  common  perception  that 
employees in the financial services sector are remarkably mobile80. Although it is too early to produce 
objective  data  on  staff  turnover  levels  following  the  introduction  of  the  Maximum  Ratio  Rule,  it 
should be recognised that many elements will factor into a staff member's decision to move, such as 
job  security,  promotion  prospects,  reputation  enjoyed  by  the  sector,  taxation,  family,  language  or 
living conditions. There is also no strong evidence on which type of remuneration (more secure fixed 
or variable with more potential for upside gain) is preferred by staff. Fixed pay seems to represent a 
higher  net  present  value  for  an  individual,  and  in  the  opinion  of  employee  representatives 
remuneration  should  consist  primarily  of  a  fixed  component,  but  this  may  essentially  be  down  to 
personal or cultural preferences.  

If the Maximum Ratio Rule impacts on attracting and retaining staff of EEA institutions, it is yet to be 
seen whether this would be in a positive or a negative way. Indeed, it has been suggested that firms 

76 New Financial "Feeling the squeeze?" (2015), available at http://newfinancial.eu/wp-content/uploads/2015/02/Feeling-the-
squeeze-July-2015-updated.pdf;  EBA  remuneration  benchmarking  data,  available  at  https://www.eba.europa.eu/regulation-
and-policy/remuneration/-/topic-documents/ckV8kFRsjau9/more  
77 EBA "Benchmarking of Remuneration practices at Union level and data on high earners data as of end 2014" 
78 IFF, 2016 
79 EBA "Benchmarking of Remuneration practices at Union level and data on high earners data as of end 2014” 
80 Murphy "Regulating banking bonuses in the European Union: a case study in unintended consequences"(2013) 

21 

 
 
 
 
 
 
 
 
 
 
                                                        
from  non-EEA  jurisdictions,  including  top  global  financial  centres  such  as  US,  Hong  Kong  or 
Singapore, have increased their fixed portion of remuneration to match that of EEA banks operating in 
their  markets81.  This  might  suggest  that  a  higher  reliance  on  fixed  remuneration  is  not  hampering 
institution's attractiveness for staff. There are today no data available that would show difficulties in 
attracting and retaining staff82.  To the contrary, a survey conducted in April 201683 has revealed that 
the majority of the surveyed credit institutions and investment/asset management firms considered that 
more fixed compensation had hardly any or no impact on their ability to attract and retain talent, or to 
motivate  performance.  In  banking,  approximately  a  quarter  of  respondents  saw  some  or  substantial 
positive impact. 

Warnings  were  also  expressed  about  the  risk  of  brain  drain  from  the  EU  financial  centres  and  of  a 
decline in their competitiveness. However, financial services professionals continue to rank EU global 
financial centres high in terms of competitiveness84. Publically reported cases of EEA-headquartered 
firms  considering  relocating  elsewhere  seem  to  have  been  motivated  by  considerations  other  than 
those of wanting to escape the CRD remuneration rules.  

UCITS and AIF managers, argue that the Maximum Ratio Rule may create an un-level playing field 
between those of them that are subsidiaries of CRD-institutions, and those who operate independently. 
So  far,  this  cannot  be  confirmed  on  the  basis  of  empirical  evidence,  largely  because  of  the  limited 
application of the Maximum Ratio Rule by such entities. However, it is worth noting that being part of 
a  group  carries  with  it  also  competitive  advantages,  and  these  considerations  must  be  part  of  the 
strategic choices to be made. At the same time, there is a good reason for applying the CRD IV rules 
on  remuneration  to  all  subsidiaries  within  the  CRR  prudential  scope  of  consolidation.  They  all  can 
have an impact on the risk profile of the group, and UCITS and AIF managers are no exception. In any 
case, the actual impact of the Maximum Ratio Rule on UCITS and AIF managers within CRD-groups 
may not be significant, given that the Maximum Ratio Rule would apply only to staff members who 
have a material impact on the risk profile of the entire group. Thus, the number of staff affected is not 
expected to be high. 

In conclusion, competitiveness of institutions depends on a combination of many factors, going well 
beyond  remuneration  rules.  So  far,  besides  general  and  often  rather  theoretical  claims  made  by  the 
industry,  there  is  no  concrete  evidence  suggesting  that  the  competitiveness  of  entities  subject  to the 
Maximum Ratio Rule is affected, but this may merit further assessment when more experience with 
the rule is gained.   

5.3.  STAFF  WORKING  EFFECTIVELY  AND  PHYSICALLY 
IN  SUBSIDIARIES 
ESTABLISHED  OUTSIDE  THE  EEA  OF  PARENT  INSTITUTIONS  ESTABLISHED 
WITHIN THE EEA  

Article 161(2) CRD calls for a review of the potential impacts of the Maximum Ratio Rule on staff 
working in subsidiaries established outside the EEA of parent institutions established within the EEA. 
The Commission is mandated to consider whether the Maximum Ratio Rule should continue to apply 
to any such staff. 

The Maximum Ratio Rule applies to subsidiaries within the prudential scope of consolidation of EEA 
institutions  but  their  staff  (including  staff  working  effectively  and  physically  in  subsidiaries 

81 Financial Stability Board, "Implementing the FSB Principles for Sound Compensation Practices and their Implementation 
Standards - Fourth progress report" (10.11.2015), available at http://www.fsb.org/wp-content/uploads/FSB-Fourth-progress-
report-on-compensation-practices.pdf: for example Brazil, Canada, Hong Kong, Mexico, Singapore, US  
82 IFF, 2016 
83 Mercer Global Financial Services Executive Compensation Snapshot Survey (2016), a survey conducted on the sample of 
68 financial services organizations in 20 countries 
84
Centres 

http://www.finance-

available 

(2015), 

 QFC's 

18 
Financial 
montreal.com/sites/default/files/publications/gfci18_23sep2015.pdf  

Global 

Index 

at 

22 

 
 
 
 
 
 
 
 
                                                        
established outside the EEA) will be identified only if it is found that they have a material impact on 
the whole group's risk profile. The number of staff affected should generally thus be rather limited. 

There have not been many arguments raised against applying Maximum Ratio Rule to third country 
staff  other  than  related  to  competitiveness  aspects.  Some  internationally  active  EEA-headquartered 
institutions suggested that it is difficult to compete for talent with local firms, and that staff turnover in 
non-EEA locations has increased, but they could not quantify or attribute this to Maximum Ratio Rule 
or remuneration in general.  

It  has  also  been  suggested  that  differences  in  the  rules  across  countries  may  have  hampered 
internationally  active  banks 
in  setting  consistent  firm-wide  compensation  strategies.  Some 
internationally  active  groups  raised  concerns  about  compatibility  issues  with  local  remuneration 
regimes.    However,  it  must  be  noted  that  if  it  can  be  demonstrated  that  the  application  of  the 
Maximum  Ratio  Rule  is  unlawful  under  the  laws  of  the  third  country  where  the  subsidiary  is 
established,  then  the  Maximum  Ratio  Rule  shall  not  apply 85.  The  assessment  of  impacts  of  the 
Maximum  Ratio  Rule  on staff  in  non-EEA  locations is  for  the  time  being  affected  by  the  relatively 
limited experience with the rule. Based on the available information, there is no compelling evidence 
to suggest at this stage that Maximum Ratio Rule should not continue to apply to such staff. 

6. CONCLUSIONS 

The review of the CRD and CRR remuneration provisions revealed overall a positive assessment of 
the rules on the governance of remuneration processes, performance assessment, disclosure and pay-
out of the variable remuneration of identified staff, introduced already by CRD III.  These rules were 
found  to  contribute  to  the  overall  objectives  of  curbing  excessive  risk-taking  and  better  aligning 
remuneration with performance, thereby contributing to enhanced financial stability.  

The review also revealed that the deferral and pay-out in instruments requirements are not efficient in 
the  case  of  small  and  non-complex  institutions  and  of  staff  earning  low  levels  of  variable 
remuneration,  and  that  the  use  of  share-linked  instruments  by  listed  institutions  in  fulfilment  of  the 
CRD pay-out in instruments requirement could be more efficient than the use of shares.  

With regard to the maximum ratio between variable and fixed remuneration introduced by CRD IV, 
the review found that for the time being there is not enough evidence to draw final conclusions on the 
impact  of  the  rule  on  competitiveness,  on  financial  stability  and  on  staff  working  for  non-EEA 
subsidiaries.  The  results  of  the  assessment  are  at  the  moment  mitigated  and  it  seems  appropriate  to 
revisit these issues once more implementation experience is gained. 

Finally, under CRR86 the Commission must provide a separate report to the European Parliament and 
to  the  Council  on  an  appropriate  regime  for  the  prudential  supervision  of  investment  firms  (the 
“investment  firms'  review”),  which  may  reveal  information  relevant  for  the  assessment  of  the 
application of the CRD remuneration rules to investment firms. 

85 Article 109(3) CRD 
86 Art 508, 493(2) and 498(2) CRR 

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