9.3.1 Severance pay

162. Institutions’ remuneration policies should specify the possible use of severance paym ents, including the maximum amount or criteria for the determination of such amounts that can be awarded as severance pay to identified staff.

163.Institutions should have a framework in which severance pay is determined and approved in the context of the early termination of a contract by the institution, including a clear allocation of the responsibilities and decision-making powers and the procedural involvement of the control functions.

164.Severance payments should not provide for a disproportionate reward, but for an appropriate compensation of the staff member in cases of early termination of the contract. In accordance with Article 94(1)(h) of Directive 2013/36/EU, severance payments must reflect performance achieved over time and must not reward failure or misconduct.

165.Severance pay should not be awarded where there is an obvious failure which allows for the immediate cancellation of the contract or the dismissal of staff.

166.Severance pay should not be awarded where a staff member resigns voluntarily in order to take up a position in a different legal entity, unless a severance payment is required by national labour law.

167.Severance payments include additional payments on top of the regular remuneration in the following specific situations:

• a. redundancy remuneration for loss of office in case of an early termination of the contract by the institution or its subsidiary;
• b. remuneration awarded for a limited time period that is agreed to introduce a cooling‐off period after the termination of the contract and is subject to a non‐competition clause;
• c. the institution terminates the contracts of staff because of a failure of the institution or early intervention measures;
• d. the institution wants to terminate the contract following a material reduction of the institution’s activities in which the staff member was active or where business areas are acquired by other institutions without the option for staff to stay employed in the acquiring institution;
• e. the institution and a staff member agree on a settlement in case of an actual labour dispute that could otherwise realistically lead to an action in front of a court.

168.Where institutions award severance pay, the institutions should be able to demonstrate to the competent authority the reasons for the severance payment, the appropriateness of the amount awarded and the criteria used to determine the amount, including that it is linked to the performance achieved over time and that it does not reward failure or misconduct.

169.When determining the amount of severance pay to be awarded, the institution should take into account the performance achieved over time and assess where relevant the severity of any failure. Identified failures should be distinguished between failures of the institution and failures of the identified staff as follows:

• a. failures of the institution should be considered when the total amount of the severance pay for staff is determined, taking into account the capital base of the institution; such severance pay should not be higher than the reduction of costs achieved by the early termination of contracts;
• b. failures of identified staff should lead to a downward adjustment of the amount of severance pay which would otherwise be awarded when only the performance over time would be considered in the estimation of the severance pay, including the possibility for a reduction of the amount down to zero.

170.Failures of institutions include the following situations:

• a. where the institution benefits from government intervention or is subject to early intervention or resolution measures in accordance with Directive 2014/59/EU³⁵ ;
• b. where the opening of normal insolvency proceedings of the institution, as defined in Article 2(1)(47) of Directive 2014/59/EU, has been filed;
• c. where significant losses lead to the situation that the institution no longer has a sound capital base and, following this, the business area is sold or the business activity is reduced.

171.Failures of identified staff should be assessed on a case-by-case basis, and include the following situations:

• a. where a member of the management body is no longer considered as meeting appropriate standards of fitness and propriety;
• b. where the identified staff member participated in or is responsible for conduct which resulted in significant losses for the institution, as defined in the institution ’ s remuneration policy;
• c. where an identified staff member acts contrary to internal rules, values or procedures based on intent or gross negligence.

172.Severance payments should be considered as variable remuneration and as a general principle therefore, if awarded to identified staff, all requirements under Article 94 of Directive 2013/36/EU apply. However, severance payments should in the following circumstances not be taken into account for the purpose of the calculation of that ratio and for the application of deferral and the pay out in instruments:

• a. severance payments mandatory under national labour law or mandatory following a decision of a court;
• b. severance payments under (i) and (ii) where the institution is able to demonstrate the reasons and the appropriateness of the amount of the severance payment:
• (i) severance payments calculated through an appropriate predefined generic formula (e.g. gardening leave) set within the remuneration policy in the cases referred to in paragraph 167;
• (ii) severance payments corresponding to the additional amount due in application of a non-competition clause in the contract and paid out in future periods, up to the amount of the fixed remuneration which would have been paid, for the non-competition period, if staff were still employed;
• c. severance payments under paragraph 167, not fulfilling the condition in point (i) of paragraph 172(b), where the institution has demonstrated to the competent authority the reasons and the appropriateness of the amount of the severance payment.

173.When calculating the amount that is not taken into account in the calculation of the ratio between the variable and fixed components of remuneration, the fact that a non-competition clause is included in the contract does not necessarily imply that the whole amount paid for the early termination of the contract is paid to compensate the identified staff for committing to not competing for a certain period of time. Only those amounts of the settlement specifically identified in the contract as compensation for the non-competition clause would comply with paragraph 172. Where national legislation limits the length of non-competition clauses, any payment made beyond those time limits cannot be considered as a ‘ settlement made for a non-competition clause ’ and therefore cannot be excluded from the ratio of variable to fixed.

174.When calculating the ratio between the variable and fixed components of the total remuneration, the following amounts of severance pay should be taken into account as variable remuneration for the purpose of the calculation of that ratio for the last performance period:

• a. the sum of any amounts higher than the fixed remuneration for the future periods under point (b)(ii) of paragraph 172;
• b. any other severance pay not listed in paragraph 172.

³⁵ Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms and amending Council Directive 82/891/EEC, and Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC, 2011/35/EU, 2012/30/EU and 2013/36/EU and Regulations (EU) No 1093/2010 and (EU) No 648/2012 of the European Parliament and of the Council (OJ L 173, 12.6.2014, p. 190).

1. Ülevaade

1.1 Viited

1.2 Tuvastatud nõuded

1.3 Seotud standardid

2. Tuvastatud nõuded

3. Seotud standardid

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