Brussels, 29th April 2009
Financial services sector pay: Commission sets out principles on remuneration of risk-taking staff in financial institutions
The European Commission has 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 Commission has also adopted a Recommendation on directors' pay (see IP/09/673).
Internal Market Commissioner Charlie McCreevy said: “Up to now, there have been far too many perverse incentives in place in the financial services industry. It is neither sensible nor sane that pay incentives encourage excessive risk-taking for short term gain. The G20 agreed that the FSF's tough new principles on compensation schemes should be implemented. The Commission is leading the way. Incentives need to be aligned with long-term, firm-wide profitability. Of course, remuneration levels should continue to be based on performance. But performance criteria should be risk-adjusted and take into account cost of capital and liquidity. Design and oversight of remuneration policies should remain the responsibility of the board and not be delegated to senior management. An increased role of supervisory authorities in the review of remuneration practices is also needed to promote sound remuneration practices in financial institutions".
The Recommendation invites Member States to adopt measures in four areas:
The Recommendation takes due account of efforts already made by several Member States and aims to foster these developments by identifying best practices to ensure greater convergence in the EU. 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 is at: