Bonus capping in European banks has been introduced by Capital Requirements Directive (CRD) IV, as part of a range of measures to improve the resilience of banks, in this case by seeking to control incentives; misaligned incentives having been identified as an important contributory factor to the financial crisis.
This EU Directive is now being implemented in EU Member States and will apply from 1 January 2014. For banks with December year ends this means bonuses paid in Spring 2015 will need to comply with the new directive.
The bonus cap applies to material risk takers, sometimes called “code staff”. With the introduction of a new European Banking Authority technical standard defining material risk takers, banks can assume all existing code staff and anyone earning over €500k will be impacted by CRD IV bonus cap.
Banks are now required to put the necessary controls and pay structures in place.