EU bonus cap – FAQs

1. What is proposed?

a cap on variable pay of 100% of salary with the possibility of increasing the cap to 200% of salary with shareholder approval (with a quorum of 50% of voting rights, 66% of votes in favour would be required, and, if that quorum is not reached, 75% of votes in favour)

the cap may be applied more flexibly where variable pay is deferred for more than five years – such deferred awards maybe discounted for the purposes of calculating variable pay which will have the effect of raising the cap to a certain extent(see 8 below)

2. Which firms will be subject to the cap?

The cap is being proposed under the Capital Requirements Directive, which means that it will apply to:

  • EU headquartered banks, including their non-EU operations
  • the EU operations of non-EU headquartered banks
  • investment firms which are subject to the Capital Requirements Directive: such firms may be caught depending on how Member States implement the rules. Currently investment firms are subject to the remuneration rules in the Capital Requirements Directive but, in general, they are able to disapply the most onerous rules on deferral, clawback and payment in shares. It may be that such firms are also able to disapply the bonus cap

Some EU law makers are also keen that other EU directives in the financial sector include the cap. The cap has therefore been proposed in the UCITS Directive (which will apply to fund managers of UCITS funds) and it is expected that those in favour of the cap will seek to amend the Alternative Investment Fund Managers Directive (AIFMD) to include it (although such a change would not be capable of being approved in time to take effect by 22 July 2013 when the AIFMD is due to be implemented).

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