EU Finalizes Banker Bonus Cap Rules
The Capital Requirements Directive IV package will limit variable pay for key financial-sector staff to 100% of fixed pay, or up to 200% with shareholder approval.
The European Union has formalized its "bonus cap" for bankers with the publication of the Capital Requirements Directive IV (CRD IV). The new regime limits variable remuneration to 100% of an employee's fixed salary, though this can be increased to 200% with sufficient shareholder approval. These rules represent a significant intervention in the financial industry, directly impacting compensation structures for senior management, risk-takers, and key control-function staff across the bloc.
Major-firm clients, including all EU credit institutions, investment firms, and EU subsidiaries of global banks, must now overhaul their remuneration policies to comply. The changes will require careful review of existing employment arrangements and potentially contentious shareholder votes to allow for the higher 2:1 ratio.
The provisions take effect for work performed from January 2014, impacting bonus pools determined in early 2015. Counsel should watch for forthcoming technical standards from the European Banking Authority, due by March 2014, which are expected to provide more detailed criteria on identifying affected staff and could potentially widen the rule's scope.