Working Group is a ‘ deferral of bonus into shares ’ scheme , under which a bonus is paid partly in cash but a significant amount is paid in shares .
The Working Group said this scheme “ simplifies the task of remuneration committees when setting targets , given the difficulty that many report in setting long-term targets .
“ It is also simple to understand for participants as there is only one variable element – the bonus . A similar structure could be used across the organisation for all employees , with a graduated level of deferral based on seniority .”
FIXED OR VARIABLE According to a study carried out by the Association for Financial Markets in Europe ( AFME ), between 2007 and 2011 firms sought to adjust fixed and variable pay for employees , actively seeking to increase the total proportion of fixed remuneration
Fixed remuneration increased 3 % in 2011 , and has increased 37 % since 2007 .
AFME said : “ As a result of these changes study participants reported that 30 % of total remuneration in 2007 was fixed , whereas in 2011 that figure had increased to 55 %.
MiFID II states the balance between fixed and variable remuneration needs to be established .
For shareholders , it ’ s important that executives are rewarded for a good performance , but not rewarded for failure , the Investment Association says .
Its Executive Remuneration Working Group said this could underpin the current variable pay system that operates now .
“ With changes to investor guidelines and the introduction of remuneration policies there have been limited instances of payment for failure , with the majority of departing directors only receiving their contractual notice payments ,” the group explained .
It will be a difficult task for firms to establish , develop and maintain a remuneration policy which is fair to shareholders , employees and is fully compliant under MiFID II .
However , as Kite Consulting chief executive Daniel Halstead rightly highlighted , it could actually be considered an opportunity .
It ’ s an opportunity to find great new staff and revise remuneration policies , ultimately improving company culture and shareholders ’ confidence in the long term . l
34 | THE TRADE MiFID II HANDBOOK www . thetradenews . com