15.2 Deferral period and proportion of deferred remuneration

The deferral period starts after the award is made (e.g. at the moment the upfront part of the variable remuneration is paid out). Deferral can be applied to both types of variable remuneration, cash and instruments.

When setting the actual deferral period and proportion to be deferred in accordance with the minimum requirements under Article 32(1) (l) of Directive (EU) 2019/2034, investment firms should consider:

• a. the responsibilities and authorities by identified staff and the tasks they performed;
• b. the business cycle and nature of the investment firm’s activities;
• c. expected fluctuations in the economic activity and performance and risks of the investment firm and business unit and the impact of identified staff on these fluctuations;
• d. the ratio between the variable and fixed components of the total remuneration and the absolute amount of variable remuneration.

Investment firms should determine for which categories of identified staff, also considering their roles and responsibilities, deferral periods longer than the required minimum period of at least three to five years should be applied to ensure that the variable remuneration is aligned with the risk profile in the long term. Where longer multi-year accrual periods are used and where the longer accrual period provides more certainty about the risks that have materialised since the beginning of the accrual period, investment firms should consider this fact when setting deferral and retention periods and may, where appropriate, introduce deferral periods that are shorter than the deferral periods which would be appropriate when a one-year accrual period would be used. The minimum requirement of a three-year deferral period applies in any case.

Investment firms should set an appropriate portion of remuneration that should be deferred for a category of identified staff or a single identified staff member at or above the minimum proportion of 40%. In case of particularly high amounts of variable remuneration, the proportion of deferral period for such staff members should be of at least 60%.

Investment firms should define what level of variable remuneration constitutes a particularly high amount, taking into account the average remuneration paid within the investment firm, when available the EBA remuneration benchmarking report on investment firms and, where available, national and other remuneration benchmarking results and the thresholds set by competent authorities. When implementing the guidelines, competent authorities should set an absolute or relative threshold, considering the above criteria. Remuneration at or above that threshold should always be considered as being of a particular high amount.

Where investment firms determine the proportion that is deferred by a cascade of absolute amounts (e.g. part between 0 and 100: 100% upfront; part between 100 and 200: 50% upfront and the rest is deferred; and part above 200: 25% upfront and the rest is deferred), investment firms should be able to demonstrate to the competent authority that on an average weighted basis for each identified staff member the investment firm respects the 40% to 60% minimum deferral threshold and that the deferred portion is appropriate and correctly aligned with the nature of the business, its risks and the activities of the member of identified staff in question.

Where the general principles of national contract and labour law prevent the substantial reduction of variable remuneration where subdued or negative financial performance of the investment firm occurs, investment firms should apply a deferral scheme and use instruments for the award of variable remuneration that ensure that ex post risk adjustments are as far as possible applied. This may include any of the following:

• a. setting longer deferral periods;
• b. avoiding the use of pro rata vesting in situations where malus can be applied, but the application of clawback would be subject to legal impediments;
• c. awarding a higher portion of variable remuneration in instruments that are aligned to the performance of the investment firm and subject to sufficiently long deferral and retention periods.