The European Banking Authority (EBA) published its report on benchmarking of remuneration practices in EU banks

This Report has been developed in accordance with Article 75 (paragraphs 1 and 3) of Directive 2013/36/EU (CRD IV), which mandates the EBA to use the data disclosed by institutions to benchmark remuneration trends and practices and to collect information on the number of individuals per institution that are remunerated EUR 1 million or more per financial year (‘high earners'), including the business area involved and the main elements of salary, bonus, long-term award and pension contribution.

The Report published on the 10 April 2018 is part of the EBA's monitoring activities and focuses on the identification of staff, the application of deferral arrangements, the pay out in instruments and the use of specific remuneration elements, e.g. guaranteed variable remuneration and severance payments. Both the 2015 and 2016 remuneration benchmarking data and the 2016 high earners data have been analysed to identify remuneration trends and practices in the EU.

For each of the two distinct data sets (i.e. the benchmarking exercise and the high earners data collection), the analysis focuses on remuneration trends, the impact of the maximum ratio of variable to fixed remuneration of 100% (or 200% with shareholders’ approval, where implemented by the Member State), known as the ‘bonus cap’, remuneration structures, and the stability and cost flexibility of institutions. Another important aspect is the analysis of the application of the regulatory technical standards on qualitative and quantitative criteria to identify categories of staff whose professional activities have a material impact on an institution’s risk profile (‘identified staff’).

As in previous years, the Report shows that remuneration practices within institutions were not sufficiently harmonised. In particular, the application of deferral and pay out in instruments differed significantly across Member States and institutions. This is mainly due to differences in the national implementation that in many cases allow for waivers of these provisions when certain criteria are met. To address this issue, the EBA published, already in 2015, an Opinion on the application of proportionality in the area of remuneration.

Identified Staff or the Material Risk Takers

All institutions need to identify staff whose professional activities have a material impact on the institution’s risk profile. This applies at the solo, sub-consolidated and consolidated levels and includes all subsidiaries in the scope of prudential consolidation, including those not directly subject to the CRD IV provisions.

The number of individuals whose professional activities have a material impact on an institution's risk profile (‘identified staff') and who are identified in accordance with the criteria set out in the EBA's regulatory technical standards (RTS) on identified staff, decreased significantly from 67 802 in 2015 to 53 382 in 2016 (-21.3%). The EBA will look into the identification process when reviewing the application of the RTS on identified staff, and in 2016, only 2.00% of staff in institutions were ‘identified staff'.

The EU remuneration data for 2016 also showed that the overall number of staff in banks decreased by 5.2%.

High Earners

As part of their disclosures, institutions have to report the number of identified staff who have been awarded EUR 1 million or more for the previous financial year.

The number of high earners who were awarded EUR 1 million or more remuneration for 2016 decreased from 5 142 in 2015 to 4 597 in 2016 (−10.6%). This was driven mainly by changes in the exchange rate between EUR and GBP, which led to a reduction of income of staff paid in GBP when expressed in EUR; around 89.47% of high earners were identified staff, versus 85.73% in 2015. In addition, for high earners, the average ratio between the variable and fixed remuneration continued to decrease from 127% in 2014 to 118% in 2015 and 104% in 2016.

Variable vs. Fixed Remuneration

Overall, the Report observes that following the introduction of a limitation of the ratio between the variable and the fixed remuneration to 100% (200% with shareholders' approval, where implemented by the Member State), the average effective ratio between the variable and fixed component for all identified staff continued to decrease to 57.1% in 2016 (2015: 62.2% and 2014: 65.5%).

In many institutions, the variable remuneration for all staff is lower than the amount distributed to shareholders. However, some institutions paid out larger amounts of variable remuneration despite the fact that only a relatively low amount was distributed to shareholders. 

How can Deloitte help?

Deloitte offers professional expertise that help organisations be ahead of the challenges of the EBA Guidelines on remuneration by offering the following  main services:

• Assess current remuneration policies and practices to ensure they are in alignment with the regulations, standards and commonly accepted best practices for similar organizations;
• Review current performance management, compensation and salary increase processes/practices and put forward recommendations for improvement;
• Executive and Board remuneration consulting;
• Remuneration benchmarking studies such as national & international pay comparisons;
• Design, development and implementation compensation strategies, considering short and long term incentive schemes, pension & shares schemes and annual bonus schemes;
• Assistance with pay negotiations and retention strategies;
• Job and competency design and performance management consulting;
• Assistance in Executive and top-level recruitment.