The Committee of European Banking Supervisors (CEBS) has today published a consultation paper including draft guidelines on remuneration. This is part of the implementation of the CRD3 provisions on remuneration. The draft guidelines will no doubt impact on the final draft of the extended FSA Remuneration Code in the UK, which is due to be published in final form towards the end of November before taking effect from 1 January 2011.

The consultation paper and draft guidelines, which can be accessed by clicking here, are extremely general and overall contain little of surprise as much of CEBS' reasoning and guidance already features in the FSA's draft Remuneration Code and no doubt the FSA's own consultation paper heavily influences CEBS' own paper.

However, three points are worth highlighting:

  • CEBS proposes that where there is a requirement to pay bonuses or other variable remuneration in cash and non-cash (usually shares) on the basis of a 50:50 split, a bank cannot pay cash first and then provide the shares as the deferred element.  The FSA had previously indicated it was prepared to see shares paid subsequently so the prized cash element could be received first.  CEBS' interpretation means that where 60% of variable remuneration has to be deferred so that only 40% can be paid up-front, only 20% of a bonus can therefore be paid in up-front cash.  The FSA will presumably have to fall in line with this guidance if it is included in the final version of the guidelines.
  • CEBS has given no guidance on actual maximum ratios between fixed and variable remuneration, which could provide a cap on the multiples of salary which can be paid as bonus.  It was feared that they might set a cap which banks would have to follow, but there seems no intention of them doing this at least in the short term.
  • CEBS also seems to suggest that shares are required to be held even after they have vested. The FSA's draft Remuneration Code had not addressed retention, although said that it was something that would be considered.  In effect, this means that even up-front payments may have to be deferred, which has not generally been appreciated.

There is to be a public hearing in London on 29 October on these guidelines, and consultation is open until 8 November.  This means that there will be a very tight timetable for the final version of the FSA's Remuneration Code to take effect this year, although the FSA itself has said that the new deferral rules on payment in shares may not take effect until next year's bonus round.

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The original publication date for this article was 08/10/2010.