Legislation passed in 2010 gives the FSA power to provide that
particularly serious breaches of the Remuneration Code (the
"Code") lead to the relevant
remuneration term automatically being void.
Since 1 January 2011, these powers have only been applied on a
transitional basis to three breaches of relevant Code provisions.
Also, they only apply to breaches by the 26 or so firms who were
subject to the original Code prior to its mass extension on 1
January 2011 and then only insofar as they affect their higher paid
Code Staff. Code Staff whose variable remuneration is no more
than 33% of their total remuneration and whose total remuneration
does not exceed £500,000 are not subject to the voiding
rules.
The relevant Code provisions to which the voiding rules apply
are:
- guaranteed variable remuneration;
- the requirement for at least 40% (or 60% in the case of higher earners) of variable remuneration to be deferred; and
- replacing the recovery of payments made or property transferred as a result of the application of the voiding rules.
In addition to being unenforceable (relevant, for example, to
stop the employee suing for it if the FSA finds out about the
remuneration), a firm is also required to take reasonable steps to
recover any payments made under void remuneration provisions.
"Voiding" therefore represents the ultimate
sanction.
Technically, the limitation of these voiding rules just to 26 or so
firms expires on 1 January 2012 and so, without further amendments
to the Code, the voiding provisions would apply to all firms
subject to the Code from that date.
As part of its most recent quarterly consultation, the FSA is
therefore consulting on what the new proposed voiding provisions
should be.
Its proposal is that the voiding provisions will still continue
only to apply to the three categories of remuneration mentioned
above (which the FSA clearly regards as the most serious structural
breaches of the Code) and still only to remuneration provided to
higher paid Code Staff, but the scope of firm to which voiding
rules apply is being slightly changed.
The FSA is, from 1 January 2012, proposing to apply the voiding
rules to the largest UK banks, building societies and other firms
in its tier one categorisation for Code purposes but also to those
firms and branches (including third country branches) who fall into
proportionality tiers one to three on their own basis but which
form part of the same group as a tier one entity. Further
details are contained in paragraphs 9.13-9.15 of the consultation
document.
The FSA is also consulting on whether pre-existing provisions in
agreements should become void as soon as the firm and/or member of
staff become subject to the voiding provisions in the Code or
whether such provisions should be excluded or
"grandfathered" unless subsequently amended.
The consultation on these changes closes on 6 October 2011.
The consultation on the changes to the Remuneration Code are
contained in Chapter 9 and Appendix 9 of the FSA's Quarterly
Consultation (No. 30) which is available here.
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 13/09/2011.
