News

Media Release

6 May 2009, Brussels





UNI Europa Finance response to Recommendation on Remuneration in the Financial Services Sector



The European Commission has published its new Recommendation on Remuneration in the financial services sector. UNI-Europa Finance welcomes this initiative aiming at ensuring that remuneration policies are consistent with effective and sound risk management.



The Recommendation responds to a great part of the UNI-Europa Finance concerns regarding remuneration and risk management in the financial services sector. It intends to align remuneration policies with the objectives, values and long-term interests of the financial undertaking and ensure that they do not induce excessive risk taking. These are key demands for UNI-Europa Finance.



UNI Europa Finance has long argued that focus on remuneration structures and risk management should not only stay with the remuneration of top executives and traders. “Remuneration structures and incentive systems for employees at lower levels play a major systemic role in risk management and are a potentially destabilising factor in financial markets”, says Oliver Röthig, Head of UNI Finance.



It is therefore an important breakthrough that the Commission has decided not to limit the recommendation to cover specific employee categories, but that the principles apply to “those categories of staff whose professional activities have a material impact on the risk profile of the financial undertaking”. An explanatory document to the Recommendation identifies the main problem regarding remuneration policies in the finance sector: Current policies have “induced excessive economic and financial risk-taking not only by key executives and senior management, but also on the lower level of the financial institution, such as sales and trading”.



It is disappointing, however, that UNI Europa Finance’s request that the Recommendation “should explicitly cover employees in sales and advice functions in financial institutions” has not been met. The 2007 sub-prime crisis on the US housing market is clear evidence of the systemic impact of inappropriate incentive structures for sales and advice personal with the use of excessive sales targets and remuneration structures exclusively rewarding sales of products.



Supervisors in the banking sector recognise that remuneration structures for employees in sales and advice functions are risk sensitive. The Committee of European Banking Supervisors (CEBS) initially had the intention to specifically mention staff in sales and advice functions in its “High Level Principles for remuneration policies”, which has served as a base for Commission Recommendation. Regrettably, it did not do it “due to contradictory comments” to the text in the consultation round, i.e. comments from the industry, which did not want the Principles to cover all employees. The Principles, however, still include “all levels of the organisation and all categories of employees”.



A concern of UNI Europa Finance has also been to ensure that the Recommendation would not interfere with the right of social partners to negotiate salaries. Remuneration policies must always respect the autonomy of the social partners and the primacy of collective agreements. This has been respected, stating that the “Recommendation is without prejudice to the rights, where applicable, of social partners in collective bargaining”.



UNI Europa Finance has equally stressed the importance of involving employees in the design and monitoring of the remuneration policy. This has been acknowledged in the Recommendation, stating “Control of the design and implementation of the remuneration policy is more likely to be effective if the stakeholders of the financial undertaking, including, where applicable, employee representatives, are properly informed of and engaged in the process of setting up and monitoring remuneration policy”. However, there is no requirement to involve or consult employees.



UNI-Europa Finance’s key demands to the Recommendation on remuneration in the financial services sector are:



1. Recommendations on remuneration in the financial services sector should explicitly cover employees in sales and advice functions in financial institutions at all levels.



2. Incentive structures for employees in sales and advice functions should encourage good customer services and qualified advice and not only sale of products. Remuneration structures should not be linked to individual sales targets.



3. Prudent supervision should oversee that remuneration structures at all levels – including sales and advice functions – are appropriate and risk conscious. Authorities should be able to penalise inappropriate practice.



4. There should be structured dialogue between unions in the finance sector and supervision authorities at all levels to address these matters and other internal practices affecting companies’ risk management and the stability of the financial system.



5. Charters on responsible sale of financial products should be developed by each financial institution and to be agreed between management, unions and other stakeholders



6. In remuneration policies, the autonomy of the social partners and the primacy of collective agreements must be respected.



“While consumers have the right to good advice; finance workers have the right to give good advice,” said Röthig, “and this depends foremost on appropriate remuneration and incentive systems.”