The guidance makes some significant clarifications to the rules, as well as providing information on the actions and processes firms need to take to comply. The entire remuneration of people who come under the scope of the rules ('code staff') will be subject to the regulations. Prior notification and/or approval by the FSA is required for certain guarantees. In particular, retention awards for code staff must be flagged to the FSA prior to payment.
The regulations state shares or other instruments paid out as variable remuneration need only be retained for six months and certain contingent convertibles (CoCos) may be allowed in place of variable remuneration delivered in shares, not just in place of cash as previously stated.
The remuneration rules are applied proportionally according to firms' size and risk profile - the new guidance sets out a process by which firms can set out their arguments to fall into a lower 'tier', subject to less onerous rules.
Jon Terry, remuneration partner at PwC, said: "The remuneration code introduced the world's toughest pay rules to the UK financial services industry and firms now have all the details they need to comply. Time is getting extremely tight, given the 30 June compliance deadline. "Of the changes, bankers are likely to be most relieved by the smaller than expected retention period for shares and other instruments paid out as variable remuneration. The European guidelines had recommended the retention time matched the deferral period, which in many cases is at least three years.
"Less popular will be further restrictions on bonus guarantees, which had already been limited to new hires for the first year of employment. It's likely the latest announcements will spell the end of guarantees for existing employees, which had been an important tool for firms to retain talent." "That 100% of an individual's pay will be subject to the regulations will be bad news for staff based overseas who fall under the scope of the rules. Many had been hoping only the proportion of pay earned in connection with the UK firm would be affected."
