In our newsflash dated 5 March 2021, we informed you of the draft law transposing certain EU directives into Belgian law that was approved in a first reading. One of those directives was the fifth Capital Requirements Directive (CRD V).
On 27 May 2021, the Belgian government introduced a definitive version of the draft law transposing CRD V into Belgian banking law. One of the main goals of CRD V is to finetune the ‘principle of proportionality’ as it has been challenging to apply this principle in practice. Moreover, the directive introduces the requirement for remuneration policies and practices to be gender neutral, which is an important novelty. It also introduces a definition of the term severance payment (‘indemnité de départ’/‘vertrekvergoeding’).
The principle of proportionality – introducing simplified rules
The principle of proportionality provides exemptions from certain remuneration requirements – such as pay-outs in instruments and deferrals of part of any variable pay – to reflect the size, internal organisation and the nature, scope and complexity of a company’s activities. In this respect and in order to align with CRD V, the Belgian government will introduce the definition of a ‘small and non-complex organisation’ and ‘low variable pay’ into Belgian banking law.
A small and non-complex organisation is defined as a financial institution that does not exceed an asset threshold of EUR 5 billion over the four-year period immediately preceding the current financial year. Furthermore, staff members whose annual variable remuneration does not exceed EUR 50,000 and does not represent more than one third of their annual total remuneration, are not subject to the remuneration requirements for pay-outs in instruments and deferrals of variable pay.
In addition to the above measures, it is now possible to use share-linked instruments. These are instruments that track the value of shares but are not actually shares themselves.
Other points of note
CRD V establishes a priority rule concerning the application of the remuneration policy on a consolidated basis. However, even though it could have, Belgium chose not to deviate from the directive in this respect.
CRD IV requires firms to have sound remuneration policies and practices that do not encourage or reward excessive risk-taking. It also sets out principles that apply to variable elements of remuneration. Building on this, CRD V introduces a minimum list of functions that fall into the category of Identified staff. This has been duly included in the Belgian draft law.
The definition of severance pay is introduced in Article 12 of Annex II of the banking law. It covers all kinds of remuneration and compensation granted upon departure, regardless of when the departure takes place and whether or not the departure is voluntary. Furthermore, it is clearly specified that such payment should be considered as variable remuneration. This means that severance payments are subject to the same restrictions as other variable pay of Identified staff albeit with some exceptions in certain circumstances.
One of the main changes is that remuneration policies are required to be gender neutral. A gender-neutral remuneration policy is defined as a policy based on equal pay for men and women for equal or equivalent work. Financial institutions will have to communicate their gender pay gap to the supervisory authorities so they can benchmark compensation trends and practices.
Over the past few years, a dedicated team at PwC has been using proven methodologies to offer an independent, robust analysis of pay data as well as an audit of practices and policies surrounding gender equal pay. If you are interested in learning more about our expertise, please consult our website on Equal-Salary Certification or contact Bart Van den Bussche.