2013 Articles

The Impact of CRD IV on Compensation

The Capital Requirements Directive, CRD IV, is poised to restrict incentive compensation for an important segment of banking employees. As a result, a number of firms are struggling to structure attractive reward packages so they can continue to compete effectively for talent with firms that will not be covered by this legislation. Should CRD IV be implemented as currently drafted, code staff bonuses will be capped at 1x fixed pay. There is still a chance that shareholders will vote for an exceptional cap of 2x fixed pay which would improve the ability to compete but would still leave European firms at a substantial disadvantage to non-EU peers for staff outside of Europe.

New Banks: License to Skill

​For the majority of 2012 and 2013, the Reserve Bank of India (RBI) has seemed reluctant to take decisive action on policy issues and monetary mechanisms. It finally managed to rouse the banking industry in India, by giving the go-ahead for corporates and non-banking finance companies (NBFCs) to apply for new banking licenses. This decision has been long debated and even longer awaited, coming after a hiatus of 10 years.  The RBI had issued only two licenses in the early 2000s and prior to that its last activity was in 1993-94.

SEC Publishes Proposed Rules for the Implementation of the Pay Ratio Disclosure

Among the many executive compensation related items included in the Dodd-Frank Wall Street Reform Act of 2010 (the Dodd-Frank Act), one of the most heavily debated and anticipated was the Pay Ratio Disclosure, or Section 953(b). This ratio, designed to illuminate the relationship between total reported compensation for a CEO and the median employee of the company (not including the CEO), sounds simple in concept, but generates a number of complex challenges. These challenges explain much of the two year delay in moving forward with the rule.

Middle Market Horizontal Review: Potential Impact

The nation's largest banks recently received letters from the Federal Reserve related to a horizontal review of Commercial Lending, which for most clients will impact their Middle Market and Specialty Lending practices.

Changing Banking for Good: UK Parliamentary Commission's Remuneration Proposals

This McLagan Alert summarises the key points relating to remuneration from the final report of the UK's Parliamentary Commission on Banking Standards (PCBS or the Commission), published last week. It considers possible implications, scope and the process that follows the report's publication.

Constraints, Caps & Clawbacks: The New Compensation Paradigm for Bankers

It has been a crazy five years for United States banks. So much has changed and yet so little progress has been made. The three key groups of stakeholders in financial industry pay are regulators, shareholders and staff. While all the stakeholders will no doubt agree that change has occurred, the real debate starts when we consider whether or not the sum of the changes have produced better or worse results.

Alternatives to Pay that Reward Employees and Increase Engagement

As premiums for working in financial services shrink and demands on staff grow, morale and motivation are becoming a daily challenge for line managers and HR alike. Many banks are currently considering new approaches that effectively reward and engage without pay.

Bonus Cap: Capital Requirements Directive IV

Negotiators for the European Parliament and European Council reached a provisional agreement on 27 February 2013 on changes to the Capital Requirements Directive (CRD IV), primarily focused on moves towards the implementation of Basel III. Included in these proposals is the cap on bank bonuses that European Union (EU) politicians have been pushing for. There are still details to be fleshed out; the agreement needs to be set down in writing, EU finance ministers and the European Parliament must ratify the final rules, and aspects of implementation require the European Banking Authority (EBA) to develop new guidance. In the meantime, this Alert summarises the main terms and considers some of the likely impacts.

Sales Incentives and the UK FSA's Guidance: More than Just a Reactive Review is Needed

This Alert summarises the final FSA guidance on the risk to customers from financial incentives; outlines the minimum that firms are required to do; sets out what firms have done to date; and suggests how to makes these changes as effective as possible.

Incentive Pay for Support Staff: Should Banks Consider Moving to Salary Only

As firms look to reduce costs, the topic of how infrastructure or support staff should be paid is frequently raised. A number of firms have broached the topic of removing incentive pay for some or all of these employees and compensating them on a pure salary basis. Other firms, who have moved compensation from variable to fixed over the past 5 years are now unhappy with their rising fixed cost base – not just for revenue generators, but for support staff as well.