European Banking Authority rules allowances do count as bonuses and should be capped

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The European Banking Authority (EBA) is well known for its love of clarity and now the opaque nature of the difference between ‘allowances’ and ‘bonuses’ has been well and truly cleared up, just in time for Christmas.

The EBA has said that ‘allowances’ most certainly do count as bonuses and therefore should be subject to a cap.

The EBA originally said in 2014 that allowances should be capped. However, today it said role-based allowances “that are not predetermined, are not transparent to staff, are not permanent, that provide incentives to take risks or, without prejudice to national law, are revocable, should be classified as variable remuneration in line with the letter and intent of [the bonus cap].”

“In accordance with CRD, institutions’ remuneration policies have to make a clear distinction between ‘fixed’ and ‘variable’ remuneration. A clear distinction of the remuneration components is paramount when calculating the ratio between the variable component and the fixed component of remuneration,” it added.

In 2013 the EBA implemented new rules capping bankers’ bonuses at 100 percent of their annual salary. But the report suggested that some EU organisations and businesses had changed their reward policies by introducing role-based allowances, which are treated as part of fixed remuneration.

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