The EU Reaches a Deal on the Proposed Ratio Cap on Bank Bonuses


On 27 February 2013 the European Union (“EU”) reached a provisional deal on imposing a cap on the variable remuneration that can be paid by financial institutions in the EU. If, as expected, this provisional deal is formally approved by the EU Parliament and Council later this year, far-reaching changes will need to be implemented in the remuneration structures of many EU-headquartered banks and non-EU headquartered banks operating in the EU.

The Key Proposals -

As part of negotiations on the new capital requirements under the Basel III rules, a provisional deal has been reached on proposed ratio caps on variable pay. The key proposals are 1:

- Variable remuneration cannot exceed a maximum of one times fixed remuneration.

- The cap on variable remuneration of one times fixed remuneration can be increased to two times fixed remuneration with shareholder approval.

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