29 April 2009

Commission principles on remuneration in financial institutions

The Recommendation sets out guidelines on the structure of pay, on the process of design and implementation of remuneration policies and on the role of supervisory authorities in the review of remuneration policies of financial institutions.

The Commission adopted a Recommendation on remuneration in the financial services sector. It recommends that Member States should ensure that financial institutions have remuneration policies for risk-taking staff that are consistent with and promote sound and effective risk-management.

 

The Recommendation sets out guidelines on the structure of pay, on the process of design and implementation of remuneration policies and on the role of supervisory authorities in the review of remuneration policies of financial institutions.

 

The Recommendation invites Member States to adopt measures in four areas:

Ø       Structure of pay: Financial institutions should strike an appropriate balance between the level of the core pay and the level of the bonus and should be able to claim back already paid bonuses.

Ø       Governance: Remuneration policy should be transparent and contain measures to avoid conflicts of interest. Board members and other staff involved in the design and operation of remuneration policies should be independent.

Ø       Disclosure: Remuneration policy should be adequately disclosed to stakeholders.

Ø       Supervision: Supervisors should ensure that financial institutions apply the principles on sound remuneration policies to the largest possible extent.

 

The Recommendation covers all sectors of the financial services industry so as to avoid loopholes and prevent distortions of competition between different sectors and financial institutions. The principles apply to all categories of staff whose professional activities have a material impact on the risk profile of the financial institution.

 

The Recommendation will be followed up by legislative proposals to bring remuneration schemes within the scope of prudential oversight. In June, the Commission will present proposals to revise the Capital Requirements Directive to ensure that regulatory capital adequately covers the risks inherent in banks' trading book, securitisation positions and remuneration policies.

 

After one year, the Commission will examine both Recommendations in the light of the experience acquired and of the outcome of the monitoring and will submit an evaluation report on Member States' application of both Recommendations.

 

The full text of the Recommendation will be available on the Commission website soon.

 

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