12 August 2022
The European Banking Authority (EBA) has published its report on benchmarking of remuneration practices in the EU for the 2019 and 2020 and high earners data for 2020.
The Capital Requirements Directive (CRD) mandates the EBA to benchmark remuneration trends in the EU and to publish data on staff whose pay is at least EUR 1 million per year (high earners). The report sets out the EBA’s findings and compares the data collected for 2020 with 2019 and, with regard to high earners, also 2018. The EBA’s main findings are set out below.
- The number of high earners fell from 4,963 in 2019 to 1,383 in 2020, mainly due to the fact that the 2020 figures no longer include data for high earners in the UK, who accounted for 71% of all high earners in 2019.
- The weighted average ratio of variable to fixed remuneration for all high earners fell from 129% in 2019 to 86.4% in 2020. Again, the decrease is mainly due to the fact that the 2020 figures no longer include data reported by UK firms for high earners who, on average, received a higher portion of variable remuneration relative to their fixed remuneration.
- When comparing the 2019 and 2020 data for the remaining EEA countries, that is, with the UK removed from the 2019 data, then:
- the number of high earners decreased from 1,444 in 2019 to 1,383 in 2020. The decrease was mainly caused by the reduction of the variable remuneration for certain staff in the context of the COVID-19 pandemic in 2020 and in line with the EBA recommendation to set variable remuneration of identified staff at a conservative level;
- a small increase of the weighted average ratio of variable to fixed remuneration for all high earners from 85.9% in 2019 to 86.4% in 2020 was observed, which was mainly caused by severance payments;
- the number of staff whose professional activities have a material impact on their firm’s risk profile (i.e. identified staff) included in the benchmarking exercise increased from 1.76% in 2019 to 1.84% in 2020. This is expected to increase further following the updates to identification practices in line with the requirements of the revised CRD and revised regulatory technical standards on material risk taker identification; and
- the average ratio of variable to fixed remuneration for identified staff decreased from 53.7% in 2019 to 49.7% in 2020. The ratio of variable to fixed remuneration for staff that were not identified staff decreased from 13.5% in 2019 to 12.3% in 2020. This reduction is due to the overall reduction in variable remuneration due to the COVID-19 pandemic as institutions followed the recommendation of the EBA and competent authorities to apply conservative remuneration policies and practices.
- The regulatory framework for remuneration practices still appeared to not be sufficiently harmonised across member states and firms. In particular, the application of deferral and pay-out in instruments requirements differs significantly among member states and firms, mainly in relation to differences in the national implementation of CRD. CRD V implemented specific criteria which allows derogation from these requirements, which is expected to enhance the harmonisation for these requirements for 2021 onwards.
- The EBA will continue to benchmark remuneration trends biennially and publish data on high earners annually, to closely monitor and evaluate developments in this area.
- The EBA has stated that when collecting data for 2022, the data will be collected separately for credit institutions and investment firms and will include also a benchmarking of the application of derogations on the requirements to pay out a part of the variable remuneration in instruments and apply deferral arrangements, the gender pay gap and, for certain firms, the features of approved higher ratios (up to 200% with shareholders’ approval) between the variable and fixed remuneration.
Although the report looks at data from 2019 and 2020 and so may not be an accurate reflection of the current market position, it is useful to review the historic data when considering the trends that have impacted remuneration across the EU.
It is no surprise that the data in the report has been heavily impacted by the UK’s exit from the EU and the onset of the COVID-19 pandemic, given the impact that both events had and continue to have on the market. It will be interesting to see the future data to more fully understand the impact of the COVID-19 pandemic and Brexit on pay in EU credit institutions and investment firms.
Further, the separate collection of data from credit institutions and investment firms should provide an interesting comparison between institution types, and it will be interesting to see the impact that the introduction of more consistent derogations under CRD V will have on the structure of variable remuneration within the EU. It will, however, take a few years for these factors to be fully reflected in the data for future reports.
If we can assist you with your incentive arrangements, please do get in touch. We would be delighted to help.
Matthew Hunter and Lewis Dulley