8.4 Retention bonuses

Investment firms should be able to substantiate their legitimate interest in awarding retention bonuses to retain an identified staff member. For example, retention bonuses may be used under restructurings, in wind-down or after a change of control or to ensure the finalisation of major projects within an investment firm. Investment firms should document the event or justification that made it necessary to award a retention bonus and the time period, including the start and the end date, for which the reason is assumed to exist. Investment firms should define the retention conditions and applicable performance conditions. Investment firms should specify a retention period and a date or event after which it determines whether the retention and performance conditions have been met.

As a general principle, investment firms should not award multiple retention bonuses to a staff member; in exceptional cases and where duly justified, more than one retention bonus may be paid to a staff member, but at different moments in time and under the conditions specified in this section with regard to each retention bonus. The retention bonuses should only be awarded after the retention conditions and applicable performance conditions have been met. Moreover, the retention bonus should only be awarded if no reasons exist that lead to a situation where the retention bonus should not be awarded, e.g. material compliance breaches, misconduct or other failures of that staff member.

A retention bonus should be in accordance with the requirements to maintain a sound capital base under Article 31 and Article 32(1)(d) of Directive (EU) 2034/2019 and the respective supervisory powers under Article 39(2)(g) of Directive (EU) 2034/2019 that could lead to a situation where the retention bonus might need to be reduced, possibly even down to zero.

When assessing and considering whether the award of a retention bonus to identified staff is appropriate, investment firms and competent authorities may take into account at least the following:

• a. the concerns that lead to the risk that certain staff may choose to leave the investment firm;
• b. the reasons why the retention of those staff is crucial for the investment firm;
• c. the consequence if the staff member concerned leaves the investment firm;
• d. whether the amount of the awarded retention bonus is necessary and proportionate to retain the targeted staff member.

A retention bonus should be based on specific conditions that differ from the performance conditions applied to other parts of the variable remuneration and include a retention condition and specific performance conditions. The specific conditions for a retention bonus should lead to the retention objective (i.e., retention of staff in the investment firm for a predefined period of time or until a certain event). The specific performance conditions should include conditions that are related to the legitimate interest for which the staff member should be retained, the conduct of staff and be compatible with the provisions in paragraph 138. Retention bonuses should not lead to a situation where the total variable remuneration, consisting of performance-related variable remuneration and retention bonus, of the staff member is no longer linked to the performance of the individual, the business unit concerned and the overall results of the investment firm as required under Articles 30(j)(ii) and 32(1)(a) of Directive (EU) 2034/2019.

Retention bonuses should not be awarded to merely compensate for performance-related remuneration not paid due to insufficient performance or the investment firm’s financial situation.

Investment firms should set the retention period as the point in time of the event or as the period between the start date and the end date of the event when the retention condition should be met. The retention bonuses should be awarded after the retention period ends. No pro rata awards should be made during the retention period.

Retention bonuses are variable remuneration and therefore if awarded to identified staff, must comply with the requirements on variable remuneration under Article 32 of IFD, including the internally set maximum ratio between the variable and fixed remuneration, the ex post risk alignment, payment in instruments, deferral, retention, malus and clawback.

Independent of the fact that the retention bonus will be awarded only after the end of the retention period, the retention bonus should be taken into account in the calculation of the ratio between the variable and the fixed part of remuneration following one of the methods specified below:

• a. the retention bonus is split into annual amounts for each year of the retention period calculated on a linear pro rata basis. Where the exact length of the retention period is not known upfront, the investment firm should set and duly document a period considering the situation and measures taken that justify the payment of a retention bonus. The calculation of the ratio should be based on the period set, or
• b. the full amount of the retention bonus is considered in the year when the retention condition is met.