FSA revises Remuneration Code

In July 2010, the FSA began consultation on revisions to its Remuneration Code and published a Draft Code containing 12 new Remuneration Principles. Much of the change implements amendments to the Capital Requirements Directive ("CRD3") which come into effect on 1 January 2011.
 
The Draft Code has significantly wider scope than the current Code, increasing the number of firms covered from approximately 25 to 2,500. The Principles apply to "Code Staff", a wider group than that presently within scope, including senior managers and staff whose professional activities have a material impact on the firm’s risk profile.

Some key changes are as follows:
(1)  At least 40% of a bonus must be deferred over a period of not less than 3-5 years (at least 60% in the case of a bonus in excess of £500,000).
(2)  Guaranteed bonuses are prohibited.
(3)  At least 50% of any bonus must be made in sha res or share-like instruments.
(4)  All deferred amounts must be subject to performance adjustment.
 
A de minimis concession applies where bonus is no more than 33% of total remuneration and total remuneration is no more than £500,000.
 
A breach of the deferral and guaranteed bonus provisions may render a contract void, under powers given to the FSA by the Financial Services Act 2010. However, the principle of proportionality is an important aspect of CRD3. The FSA is likely to provide further guidance on its approach to proportionality (and the possibility that in certain circumstances rules will be applied on a "comply or explain" basis) before the final rules are published.