PS9/23 – Remuneration: Ratio between fixed and variable components of total remuneration (‘bonus cap’)

Following a corresponding consultation earlier this year (EventID 19015), the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) have published their final joint policy statement as regards the removal of the bonus cap, that is the maximum incentive that may be paid to material risk takers of banks, building societies, and PRA-designated investment firms. To recall, based on scientific evidence, both regulators sought to remove the cap as it brought about a major shift towards fixed compensation. This fixed compensation, however, is undesirable as it prevents firms from quickly adapting to changing market conditions.
In their final policy statement now, the PRA and the FCA note that all respondents welcomed the removal of the cap which is why the regulators will proceed as proposed and remove the corresponding provisions in their Rulebook and Handbook, respectively and adjust the Supervisory Statement SS2/17 – Remuneration accordingly.
Having reviewed the feedback of the respondents, the regulators have also made some minor modifications to the draft version which include
– the moving of the implementation date to October 31, 2023;
– for clarity purposes, the maintenance of paragraphs 5.32 and 5.33 in the supervisory statement, referring to the calculation of the fixed to variable ratio in relation to guaranteed variable remuneration; and
– the addition of new guidance in the supervisory statement as to the „Setting an appropriate ratio between the fixed and variable components“ which was requested by respondents.