15.4 Award of variable remuneration in instruments

The instruments used for the award of variable remuneration should contribute to the alignment of variable remuneration with the performance and risks of the investment firm.

Investment firms should prioritise the use of instruments, as set out in Article 32 (j) of Directive (EU) 2019/2034, issued by the investment firm itself. Investment firms may also use the instruments listed in points (i), (ii) and (iii) of Article 32(j) of Directive (EU) 2019/2034 issued within the scope of consolidation. The variable remuneration may consist of a balance of different types of instruments.

Where an investment firm does not issue any eligible instruments, but does not benefit from a waiver under Article 32(4) of Directive (EU) 2019/2034, it should apply for the use of an alternative arrangement, demonstrating that it does not issue such instruments.

Competent authorities, when deciding on applications to use alternative arrangements, should take into account:

• a. that investment firms which are stock corporations (both listed and non-listed) have issued shares and therefore in general shares and in any case share-linked instruments are available for the pay-out of variable remuneration;
• b. if it would be possible and proportionate for the investment firm to make use of share-linked instruments or equivalent non-cash instruments, subject to the legal structure of the investment firm;
• c. if ‘other instruments’ under Article 32(j)(iii) of Directive (EU) 2019/2034 have been issued, which depends on whether an investment firm or an investment firm in the scope of consolidation has already issued such instruments and sufficient amounts of such instruments are available. Where investment firms are primarily wholesale funded, or rely to a large extent on additional Tier 1, Tier 2 or bail-in-able debt to meet their capital requirements, such instruments should be available for the purposes of variable remuneration, provided that these ‘other instruments’ comply with Commission Delegated Regulation mandated under the IFD;
• d. If there are specific requirements under national labour law that prevent the use of an issued eligible instrument for the pay-out of variable remuneration.

Share-linked or other equivalent non-cash instruments (e.g. stock appreciation rights, types of synthetic shares) are those instruments or contractual obligations, including instruments based on cash, whose value is based on the market price or, where a market price is not available, the fair value of the stock or equivalent ownership right and track the market price or fair value. All such instruments should have the same effect in terms of loss absorbency as shares or equivalent ownership interests.

Investment firms should ensure that they have the awarded instruments available when the variable remuneration awarded in instruments vest. Investment firms may decide not to hold the instruments during the deferral period, but should in that case take into account the relevant market risks.

Instruments should be priced at the market price or their fair value on the date of the award of these instruments. This price is the basis for the determination of the initial number of instruments and for later ex post adjustments to the number of instruments or their value. Such valuations should also be done before the vesting to ensure that ex post risk adjustments are applied correctly and before the retention period ends. Investment firms that are not listed may establish the value of the ownership interests and ownership interest-linked instruments based on the last annual financial results.

Investment firms may award a fixed number or nominal amount of deferred instruments using different techniques, including trustee depot facilities and contracts, provided that in every case, the number or nominal amount of the instruments awarded is provided to identified staff at vesting, unless the number or nominal amount is reduced by the application of malus. Investment firms should make sure that the awarded instruments are available for the pay out to staff at the latest when they vest.

Investment firms should not pay any interest or dividend on instruments which have been awarded as variable remuneration under deferral arrangements to identified staff; this means also that interest and dividends payable during the deferral period should not be paid to staff after the deferral period ends. Such payments should be treated as received and owned by the investment firm. The same should apply for non-cash instruments which reflect the instruments of the portfolios managed.