If businesses with satisfied clients grow more rapidly than those with unhappy customers , staff should be remunerated accordingly , according to regulators ’ thinking .
‘ BONUS CULTURE ’ As stipulated above , MiFID II requires that firms offer incentives , which are not based purely on commercial criteria alone .
Prior to the credit crisis , many of the world ’ s leading financial institutions were incentivising staff based on quantitative metrics . Depending on job roles , this ranged from trading margins to products sold .
Since then , MiFID II has moved to specifically outlaw incentive schemes which only set targets based on quantitative commercial criteria .
It states : “ Remuneration and similar incentives shall not be solely or predominantly based on quantitative commercial criteria , and shall take fully into account appropriate qualitative criteria reflecting compliance with the applicable regulations , the fair treatment of clients and the quality of services provided to clients .”
One of the biggest names to have tumbled in the credit crisis was Royal Bank of Scotland . Once one of the biggest institutional and retail banking institutions , it collapsed after the crisis , only to be bailed out by the UK taxpayer . At the start of 2016 – eight years on from the crisis – 82 per cent of RBS shares remained owned by the UK government .
In May this year , the bank suffered further losses in the first quarter , totalling almost £ 1 billion .
Despite this , and eight consecutive years of net annual losses , RBS ’ s staff were awarded large bonuses and chief executive officer , Ross McEwan was awarded a wage of nearly £ 3.8 million in 2015 , double the previous year .
Shareholders at RBS strongly criticised the remuneration committee for management salaries being too high and bonuses being awarded despite the drop in revenues .
Since the financial crash , the financial services industry has done little to shake off its notorious culture of “ greed ”.
In the months leading up to the latest MiFID II delegated acts , shareholders at Citigroup started a public protest against executive pay with more than a third voting against chief executive officer Michael Corbat ’ s wage increase .
These sorts of protests have become commonplace .
Keith Skeoch , chief executive officer at Standard Life volunteered to reduce his bonus , and encouraged other executives to follow his example after shareholders raised similar concerns over his remuneration .
Hermes Investment Management openly expressed unease over Deutsche Bank ’ s increases in base salaries in recent years , stating that the “ lack of consultation ” and “ inadequate transparency ” on its proposed new remuneration system was a major concern .
Hermes opposed the new remuneration system at Deutsche Bank ’ s annual general meeting on 19 May this year .
During this time of heightened scrutiny , the Investment Association ’ s Executive
DISCRETION SHOULD BE USED , BOTH UPWARDS AND DOWNWARDS RATHER THAN COMMITTEES RELYING ON FORMULAIC OUTCOMES .
NIGEL WILSON , CHIEF EXECUTIVE OFFICER , LEGAL & GENERAL
Remuneration Working Group has advised its members to do their utmost to prevent developing a ‘ bonus culture ’.
It says that a long-term incentive plan ( LTIP Model ), for example , should consist of “ a grant of shares that vest based on a performance measure over a three to five year period , against a series of pre-agreed targets .”
This type of model allows companies to analyse their long-term strategy , and as the structure becomes embedded it is well understood by shareholders and participants .
Another strategy suggested by the Executive Remuneration
www . thetradenews . com THE TRADE MiFID II HANDBOOK | 33