EBA欧洲银行-EBA_2014_00420000_SK_TRA_16页_363kb

Summary of EBA Guidelines on the Applicable Discount Rate for Variable Compensation

Core Content

The European Banking Authority (EBA) has issued guidelines on the applicable discount rate for variable compensation, which are based on Regulation (EU) No 1093/2010 and related to the calculation of the ratio between variable and fixed compensation components for employees whose professional activities significantly affect the risk profile of the institution. These guidelines are aimed at ensuring consistency and transparency in the application of the discount rate, particularly for variable compensation paid in the form of deferred instruments.

Main Points

1. Scope and Definitions

• The guidelines apply to financial institutions and national competent authorities.
• Variable compensation that can be discounted refers to deferred compensation paid in capital or long-term instruments or instruments linked to them, with a deferred period of at least five years.
• The discount rate is used to calculate the discounted value of variable compensation, which is then used in the ratio calculation between variable and fixed compensation.

2. Requirements for Discount Rate Application

• The maximum discount rate applicable is 25% of the total variable compensation, unless a member state allows a higher rate.
• The discount rate calculation includes three factors: inflation rate, average yield of EU government bonds, and a motivational factor for long-term deferral.
• The motivational factor increases by 4 percentage points for each additional full year of deferral beyond five years.

3. Calculation of Discount Rate

• The formula for calculating the discount rate is:
  $$
  \text{discount rate} = \frac{1}{(1 + i + g + id)^n}
  $$
  Where:

  • $i$ = inflation rate
  • $g$ = average yield of EU government bonds
  • $id$ = motivational factor for long-term deferral
  • $n$ = number of years of the deferral period

• In cases of partial recognition of the compensation claim, the formula for the present value can also be used:
  $$
  \text{dvr} = \text{vrpr} * \frac{(r^n - 1)}{r^n * (r - 1)}
  $$
  Where:

  • $r = 1 + i + g + id$
  • $vrpr$ = partially recognized variable compensation

Key Information

1. Discount Rate Application

• The discount rate applies only to variable compensation paid in the form of deferred instruments with a minimum deferral period of five years.
• The discounted value is used to determine the ratio between variable and fixed compensation components for identified employees.

2. Factors in the Discount Rate Calculation

• Inflation Rate (i): The latest available HICP rate for the relevant country or third country.
• EU Government Bond Yield (g): The average yield of long-term EU government bonds published by Eurostat.
• Motivational Factor (id): Starts at 10% for five-year deferrals and increases by 4% for each additional year.

3. Deferral Period (n)

• The deferral period is rounded down to the nearest whole number.
• In cases of partial recognition, the deferral period is applied to each year of the claim.

4. Documentation and Transparency

• Institutions must document the calculation and application of the discount rate.
• They must maintain records of variable and fixed compensation components, the discount rate applied, and the ratio between variable and fixed compensation.
• Institutions are required to submit detailed reports to the EBA in accordance with Regulation (EU) No 1093/2010.

5. Review Process by Supervisory Authorities

• National competent authorities must review the application of the discount rate in the context of their supervisory framework.
• They should ensure that the guidelines are appropriately integrated into their supervisory processes.

Implementation and Effective Date

• The guidelines are effective from 1 June 2014.
• They apply to variable compensation awarded for performance during the period from 1 January 2014 onwards.
• Institutions must ensure compliance with the guidelines by 27 May 2014, or provide reasons for non-compliance.

Examples of Discount Rate Application

Example 1

• Total Variable Compensation: 150,000 EUR
• Discounted Amount: 25% of 150,000 EUR = 37,500 EUR
• Inflation Rate (i): 2%
• EU Government Bond Yield (g): 2.73%
• Motivational Factor (id): 10% for 5-year deferral, 14% for 6-year deferral
• Deferral Period (n): 5 and 6 years respectively
• Discounted Value for 20,000 EUR: 10,061.09 EUR
• Discounted Value for 10,000 EUR: 3,569.75 EUR
• Total Discounted Variable Compensation: 13,630.84 EUR
• Total Variable Compensation for Ratio Calculation: 133,630.84 EUR
• Ratio (Variable/Fixed): (133,630.84 / 135,000) * 100 = 98.99%

Example 2

• Total Variable Compensation: 150,000 EUR
• Discounted Amount: 25% of 150,000 EUR = 37,500 EUR
• Inflation Rate (i): 2%
• EU Government Bond Yield (g): 2.73%
• Motivational Factor (id): 14% for 6-year deferral
• Deferral Period (n): 6 years
• Discounted Value for 37,500 EUR (partial recognition): 21,457.07 EUR
• Total Variable Compensation for Ratio Calculation: 133,957.07 EUR
• Ratio (Variable/Fixed): (133,957.07 / 135,000) * 100 = 99.23%

Example 3

• Total Variable Compensation (tvr): To be calculated based on the formula:
  $$
  \text{fr} = (1 - 0.25) * \text{tvr} + \frac{0.25 * \text{tvr}}{(1 + i + g + id)^n}
  $$
• Fixed Compensation (fr): 100,000 EUR
• Inflation Rate (i): 2%
• EU Government Bond Yield (g): 2.73%
• Motivational Factor (id): 10% for 5-year deferral
• Deferral Period (n): 5 years
• Calculated Total Variable Compensation (tvr): 114,186.10 EUR

Key Outcomes

• The guidelines ensure that variable compensation is discounted appropriately based on the deferral period and relevant financial factors.
• They emphasize the need for transparency and proper documentation of the discounting process.
• The application of the discount rate helps maintain a balanced ratio between variable and fixed compensation for identified employees.