UK: Financial Services Remuneration in the UK


In December, the FSA published its final version of its Remuneration Code (the Code). The Code now incorporates requirements contained in the latest version of the Capital Requirements Directive (CRD3) – European legislation which, amongst other things, deals with remuneration in the financial services industry. This alert gives an overview of the Code, focussing on: 

  • its scope;
  • the deadlines for compliance;
  • the constraints on variable remuneration;
  • the proportional application of the Code through the division of businesses covered by the Code into four tiers, each with different compliance requirements; and 
  • voiding provisions — i.e. provisions which render certain contractual terms on variable remuneration void if they breach Code requirements.

This bulletin also summarises the related and new obligations on disclosure of remuneration, which were published by the FSA at the same time as the Code. Like the Code, these disclosure obligations also implement requirements contained within CRD3.


The three key questions on scope are: 

  • which businesses are within scope (by reference to what they do and where they are located);
  • which staff are covered; and
  • the meaning of variable remuneration.

Which businesses

The Code applies in some form to all banks, building societies and investment firms which are within the scope of the Capital Adequacy Directive. There are more than 2,500 of these, which include asset managers, hedge fund managers, UCITS investment firms, stockbrokers and some firms that engage in corporate finance, venture capital and the provision of financial advice.

UK operations of groups headquartered elsewhere

UK operations of groups headquartered elsewhere which carry out relevant activities, whether subsidiaries with overseas parent companies or branches, will be subject to the Code. The sole exception to this is that the Code will not apply to UK branches of firms whose home state is within the EEA. The basis for this is that the home state of such entities will be required to apply equivalent provisions under the latest version of CRD3.

Overseas branches and group members

UK headquartered groups are required to apply the Code globally to all their entities carrying out relevant activities. Therefore, where a UK-headquartered firm is caught by the Code, it will also apply to its overseas branches and (on a consolidated basis) to non-UK group members if they form part of the UK firm's consolidation group (or an EEA subgroup). A UK firm's overseas operations will therefore fall within the scope of the Code.

The table below is illustrative of the scope of the Code, based on 3 banks, the London headquartered Bishops Square Bank, the New York headquartered Times Square Bank and the Paris headquartered Saint Honoré Bank, each of which has branches in London, New York and Paris.

Does the Code apply?


Bishops  Square Bank

Saint Honoré Bank

Times Square Bank

London Branch




Paris Branch




New York Branch




Which staff

The Code applies to all "Code Staff".  It has wide scope and covers:

  • senior management – which is defined as any "individual employed by the firm to whom the governing body (or a member of the governing body) of the firm has given responsibility for management and supervision, and who reports directly to the governing body, a member of the governing body, the chief executive, or the head of a significant business group";
  • risk takers – where examples of high-level risk takers provided by the Code include heads of significant business lines and heads of support and control functions who have a material impact on the firm's risk profile. The Code includes a non-exhaustive table of examples of the key positions that it would expect to be within a firm's definition of risk takers;
  • staff engaged in control functions such as compliance and risk; and
  • any employee receiving total remuneration that takes them into the same remuneration bracket as senior management and risk takers, whose professional activities have a material impact on the firm's risk profile. This is effectively a catch-all category.

In practical terms, despite the broad definition of Code Staff, it will generally be clear which staff are Code Staff – not least because they will be highly remunerated and receive a significant proportion of their remuneration by way of bonus payments.

De minimis threshold

Even for Code Staff, generally, the restrictions on variable remuneration will only apply if either or both of the following conditions are satisfied: (i) the individual's variable remuneration is 33% or more of their total remuneration; and (ii) the individual's total remuneration is £500,000 or more. This is referred to as the de minimis threshold. Despite this, firms should be live to the possibility of remunerating staff who fall below the de minimis threshold in accordance with the Code requirements where such people have a material impact on the firm's risk profile because of their particular job function or responsibilities. This is because the overriding objective of the Code is to ensure remuneration policies, procedures and  practices do not undermine effective risk management – failing to comply with guidelines in respect of  individuals not expressly covered by the Code could be evidence of a more general failure to comply with this overriding objective. 

What is variable remuneration

Variable remuneration is not just limited to bonus payments. Rather, the term encompasses any element of pay that is not fixed, including commission payments. In particular, the Code expressly states that long-term incentive plans should be treated as pools of variable remuneration. Similarly, although standard pension payments (such as benefits that accrue under the employee's company pension plan or the firm's contractual pension obligations), would not constitute variable remuneration, non-standard, enhanced, pension benefits granted on a discretionary basis, especially if granted as part of a variable remuneration package, would constitute variable remuneration.


The Code came into effect on 1 January 2011. 

The limited number of firms that were already subject to the previous version of the Code (mostly large banks and building societies) are expected to have complied with the Code from 1 January 2011. The one exception to full compliance for such firms is for non-listed firms and building societies, where there is some scope to delay compliance with the requirement for at least 50% of variable remuneration to be paid in an appropriate non-cash form. However, firms are nonetheless expected to take steps to ensure compliance with this requirement as soon as reasonably possible, and in any event by 1 July 2011.

Businesses that will become subject to the Code for the first time are required to start planning for the implementation of suitable remuneration structures, policies and practices as soon as possible. Indeed, the FSA considers it "desirable" for all such firms to have appropriate governance arrangements and procedures in place immediately. However, the Code accepts that firms will not be in breach of the Code, provided they take reasonable steps to comply with it as soon as is reasonably possible, and in any event by 1 July 2011. Importantly, this means that firms should actively be taking steps now to ensure that their remuneration structures are fully compliant with the requirements of the Code by the 1 July 2011 deadline.


Subject to proportionality (see below), the key requirements on variable remuneration contained within the Code are as follows:

  • For Code Staff who satisfy the de minimis thresholds:
    • Deferral: At least 40% of variable remuneration must be deferred over at least three years, with vesting to be no faster than on a pro-rata basis (and the first vesting no earlier than one year after the award). This deferred amount rises to 60% where variable remuneration exceeds £500,000.
    • Proportion in shares: At least 50% of any variable remuneration components must be made in shares, share-linked instruments or other equivalent non-cash instruments of the firm, subject to a minimum retention policy. This applies to both the deferred and upfront portions of any award.
    • Performance adjustment: Firms should retain the ability to make adjustments to an individual's deferred amounts of variable remuneration, after the amount has been communicated to an individual, to reflect actual outcomes as they materialise over time.
  • For all staff (including Code Staff): 
    • Guaranteed bonuses: These  must be limited to new hires, only be offered in exceptional circumstances and subject to performance adjustment. They must also be limited to the first year of service. Additionally, a firm must take reasonable steps to ensure that the bonus offered is not more generous than what the individual received from or was offered by their previous firm (for example by not overpaying when "buying out" someone for the benefits lost by moving jobs).
    • Retention payments: These should only be paid in exceptional circumstances where the firm is undergoing a major restructuring and the firm can justify the awards on prudential grounds.
    • Severance payments: These should reflect performance over time and failure must not be rewarded.


CRD3 allows regulators to apply a proportionate approach to firms by reference to their size, internal organisation and the nature, scope and complexity of their activities. The Code has addressed this by dividing firms covered by the Code into four tiers with different minimum requirements for each tier. They are divided as follows.

Tier 1

FSA-regulated firms that were covered by the previous version of the Code, which are:

  • banks and building societies with capital resources of more than £1 billion; or
  • BIPRU €730k firms that are full scope BIPRU investment firms with capital resources of more than £750 million;  or
  • third-country BIPRU firms (that is branches of firms established outside the EEA) with total assets (for the UK branch) of more than £25 billion.

They are broadly expected to comply with the Code in full although one exception is that some Tier 1 firms with an overseas parent will not need to establish a remuneration committee for UK staff, provided that adequate procedures are in place to ensure compliance with the Code for UK staff.

Tier 2

FSA-regulated firms such as credit institutions and broker dealers that engage in significant proprietary trading/investment banking activities. Specifically, Tier 2 consists of:

  • banks and building societies with capital resources of between £50 million and £1 billion; or
  • BIPRU €730k firms that are full scope BIPRU investment firms with capital resources of between £100 million and £750 million; or
  • third-country BIPRU firms with total assets (for the UK branch) of more than £2 billion.

Tier 2 firms are expected to comply with the Code  in a similar fashion to Tier 1 firms, except Tier 2 firms such as building societies and unlisted firms, will not have to comply with the requirement to deliver at least 50% of variable remuneration in an appropriate non-cash form where they can show that this is inappropriate.

Tier 3

FSA-regulated firms, such as small banks and building societies or firms that may occasionally take overnight/short-term risk with their balance sheets. Specifically they are:

  • banks, building societies and full scope BIPRU investment firms not within tiers one and two; or
  • third-country BIPRU firms not within tiers one, two and four.

Tier 3 firms will generally not be required to:

  • have a remuneration committee (although the this will be "desirable" for larger Tier 3 firms);
  • deliver at least 50% of variable remuneration in an appropriate non-cash form;
  • defer a proportion of Code Staff variable remuneration (although such firms will be encouraged to use firm-wide deferral to align remuneration with effective risk management); or
  • reduce deferred variable remuneration to reflect performance.

For other rules, the FSA will apply a discretionary approach that is likely to result in less-onerous requirements for Tier 3 firms than Tier 1 and 2 firms.

Tier 4

FSA-regulated limited licence and limited activity firms (and third-country BIPRU firms with equivalent permissions). For example, firms that generate income from agency business without putting their balance sheets at risk would fall within Tier 4.

Tier 4 firms are expected to comply with the Code in a similar fashion to Tier 3 firms, except that Tier 4 firms will also generally:

  • not be required to specify appropriate limits for the proportion of variable remuneration; and
  • be able to take into account their specific activities when applying rules on profit-based measurement and risk adjustment of variable remuneration, and multi-year performance periods for the assessment of variable remuneration.

Other noteworthy features of the Tier system

The following should be borne in mind.

  • Firms within a group in which several firms are subject to the Code, will generally all fall within the highest proportionality tier to which any group member belongs.
  • The Tier system will be applied flexibly. In particular, firms close to the boundary between two proportionality tiers may find themselves being judged as if they are in a higher tier having regard to that firms' specific risk characteristics.
  • Firms can make submissions to the FSA that they should be treated as being in a lower proportionality tier than the general guidance would suggest and the FSA may authorise such treatment. Again this will depend on a firm's specific risk characteristics. Similarly, the FSA may determine that a firm should be moved into a higher proportionality tier than the general guidance would suggest, based on a firms' individual risk characteristics.


The Code contains provisions rendering void certain contractual provisions insofar as they are in breach of the Code. Moreover, a firm will be obliged to recover payments in breach of such provisions. Specifically, any contractual provision for Code Staff (whose remuneration exceeds the de minimis threshold) will be void if it is breach of requirements in respect of:

  • guaranteed bonuses;
  • the deferral of a bonus; or
  • prohibitions on payments made to replace any payments or property recovered from Code Staff as a result of the voiding provisions. 

In addition, a firm that makes a voidable payment to an individual, will then be restricted from paying further variable remuneration to that person in respect of the same performance year, unless it has a legal opinion stating that the new award complies with Code.

A firm must notify the FSA of any breach of a rule which leads to a contractual provision being rendered void.

The voiding provisions therefore mean it is necessary for agreements between firms and their staff to have provisions in place giving the firm the right to recover payments made to staff in breach of the Code. The need for such provisions is all the more so given that the Code requires firms to have the right to make changes to bonus payments awarded or even paid to staff (for example where performance adjustments are needed). This requirement may be difficult to reconcile with local laws prohibiting recovery of such amounts (for example where there is a need to apply an adjustment to an employee employed by an overseas branch of a UK firm). In the UK, while we appreciate the practical difficulties, we would strongly recommend amending policies and contracts of employment (especially for new hires) to enable compliance with this. A sample starting point for a clause for the UK could read as follows:

The Company is entitled to:

  1. withhold;
  2. defer;
  3. reduce the amount of;
  4. require repayment by the Employee of;
  5. change the date of payment or vesting of;
  6. change the proportion of any payment payable by way of cash, shares (or equivalent ownership interests), share-linked instruments or equivalent non-cash instruments in respect of; or
  7. take any other action in respect of,

all or any part of any bonus awarded, paid or payable (as the case may be) to the Employee (whether directly or indirectly) [including any bonus pursuant to the [INSERT NAME OF ANY RELEVANT BONUS SCHEME]], if the Company determines in its absolute discretion that such action is appropriate in order to comply with the FSA Remuneration Code or any applicable laws or the rules, codes or guidelines of any statutory or regulatory body relating to the remuneration of employees (in each case as amended from time to time) or to comply with any policy or procedure implemented by the Company [or any Group Company] from time to time relating to the remuneration of employees. If the Company requires repayment of any amount paid to the Employee (whether directly or indirectly) pursuant to this clause, any such amount, on the request of the Company, must be repaid by the Employee to the Company forthwith and will be recoverable by the Company as a debt (without prejudice to the rights of the Company to any other remedy) and the Employee further agrees that at any time during the continuance of his or her employment and on termination of his or her employment, the Company shall be entitled to deduct from any sums due to the Employee (including salary, pay in lieu of notice, holiday pay or sick pay) any amount up to the total amount of any repayment required by the Company pursuant to this clause.


There are no specific notification or disclosure requirements in the Code, although the FSA is proposing that firms provide, at a minimum, an annual attestation that all Code Staff have been identified and listed, via their regulatory returns. In this regard, later this year the FSA will issue a form for data and other information to be supplied by firms as well as questionnaires or templates for such disclosures.

However, last month, alongside the Code, the FSA also published new rules implementing CRD3's requirements on the disclosure of remuneration. Broadly, the new rules require firms to make disclosures relating to Code Staff in relation to its remuneration policy, procedures and practices. Specifically, the disclosures required include:

  • information concerning the decision-making process used for determining the remuneration policy, including if applicable, information about the composition and the mandate of a remuneration committee, the external consultant whose services have been used for the determination of the remuneration policy and the role of the relevant stakeholders;
  • information on the link between pay and performance;
  • the most important design characteristics of the remuneration system, including information on the criteria used for performance measurement and risk adjustment, deferral policy and vesting criteria;
  • information on the performance criteria on which the entitlement to shares, options or variable components of remuneration is based;
  • the main parameters and rationale for any variable component scheme and any other non-cash benefits;
  • aggregate quantitative information on remuneration, broken down by business area;
  • aggregate quantitative information on remuneration, broken down by senior management and members of staff whose actions have a material impact on the risk profile of the firm, indicating the following:
  • the amounts of remuneration for the financial year, split into fixed and variable remuneration, and the number of beneficiaries;
    • the amounts and forms of variable remuneration, split into cash, shares, share-linked instruments and other types;
    • the amounts of outstanding deferred remuneration, split into vested and unvested portions;
    • the amounts of deferred remuneration awarded during the financial year, paid out and reduced through performance adjustments;
    • new sign-on and severance payments made during the financial year, and the number of beneficiaries of those payments;
    • the amounts of severance payments awarded during the financial year, number of beneficiaries and highest such award to a single person.

Like the Code, the FSA is intending to apply the new disclosure requirements in a proportionate way, categorising firms between Tier 1 and Tier 4. In particular, the FSA expressly acknowledges that "disclosure will be required in a manner that is appropriate to their size, internal organisation and the nature, scope and complexity of their activities". Although there will be no complete exemption from the disclosure requirements, and so all firms will be required to disclose at least some information, the expectation is that firms in lower tiers will be subject to less onerous disclosure requirements.

Under the new FSA rules, firms will be required to disclose information on their remuneration policies and pay-outs at least on an annual basis. The first disclosure under the new regime will need to be "as soon as practicable" after 1 January 2011, but the FSA is expected to impose an ultimate deadline of 31 December 2011.


The new rules on remuneration and disclosure do not come as a great surprise in the light of previous publications and consultation papers from both European and national governments and regulatory bodies. 

However, now the details have been published and deadlines for compliance set, it is imperative that those in the financial services industry with UK operations, whether in the UK or elsewhere, start taking steps straightaway to ensure their remuneration policies, practices and procedures are compliant with the new regulatory regime.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.