Related provisions for SYSC 19C.3.42
1 - 20 of 67 items.
(1) This section applies in relation to dual-regulated firms Remuneration Code staff, except as set out in (3).(2) When establishing and applying the total remuneration policies for dual-regulated firms Remuneration Code staff, a firm must comply with this section in a way2 that is appropriate to its size, internal organisation and the nature, the scope and the complexity of its activities (the dual-regulated firms remuneration principles proportionality rule).(3) Paragraphs (1)
A firm must:(1) maintain a record of its dual-regulated firms Remuneration Code staff under the general record-keeping requirements (SYSC 9); and(2) take reasonable steps to ensure that its dual-regulated firms Remuneration Code staff understand the implications of their status as such, including the potential for remuneration which does not comply with certain requirements of the dual-regulated firms Remuneration Code to be rendered void and recoverable by the firm.
(1) A significant firm2 must establish a remuneration committee .(2) A firm in (1) must ensure that:(a) the remuneration committee is constituted in a way that enables it to exercise competent and independent judgement on remuneration policies and practices and the incentives created for managing risk, capital and liquidity;(b) the chairman and the members of the remuneration committee must be members of the management body who do not perform any executive function in the firm;(c)
(1) A firm should be able to demonstrate that its decisions are consistent with an assessment of its financial condition and future prospects. In particular, practices by which remuneration is paid for potential future revenues whose timing and likelihood remain uncertain should be evaluated carefully and the governing body or remuneration committee (or both) should work closely with the firm's risk function in evaluating the incentives created by its remuneration system. (2)
A firm must ensure that employees engaged in control functions:(1) are independent from the business units they oversee;(2) have appropriate authority; and(3) are remunerated:(a) adequately to attract qualified and experienced employees; and(b) in accordance with the achievement of the objectives linked to their functions, independent of the performance of the business areas they control.[Note: article 92(2)(e) of CRD and Standard 2 of the FSB Compensation Standards]
(1) A firm's risk management and compliance functions should have appropriate input into setting the remuneration policy for other business areas. The procedures for setting remuneration should allow risk and compliance functions to have significant input into the setting of individual remuneration awards where those functions have concerns about the behaviour of the individuals concerned or the riskiness of the business undertaken.(2) Contravention of (1) may be relied on as
A firm must ensure that the remuneration of the senior officers in risk management and compliance functions is directly overseen by the remuneration committee referred to in SYSC 19D.3.12R or, if such a committee has not been established, by the governing body in its supervisory function.[Note: article 92(2)(f) of CRD]
(1) This Remuneration Principle is designed to manage the conflicts of interest which might arise if other business areas had undue influence over the remuneration of employees within control functions. Conflicts of interest can easily arise when employees are involved in the determination of remuneration for their own business area. Where these could arise, they need to be managed by having in place independent roles for control functions (including, notably, risk management
A firm that benefits from exceptional government intervention must ensure that:(1) variable remuneration is strictly limited as a percentage of net revenues when it is inconsistent with the maintenance of a sound capital base and timely exit from government support;(2) it restructures remuneration in a manner aligned with sound risk management and long-term growth, including (when appropriate) establishing limits to the remuneration of members of its management body; and(2) no
The FCA would normally expect it to be appropriate for the ban on paying variable remuneration to members of the management body of a firm that benefits from exceptional government intervention to apply only to members of the management body who were in office at the time that the intervention was required.
(1) A firm must ensure that any measurement of performance used to calculate variable remuneration components or pools of variable remuneration components: (a) includes adjustments for all types of current and future risks and takes into account the cost and quantity of the capital and the liquidity required; and (b) takes into account the need for consistency with the timing and likelihood of the firm receiving potential future revenues incorporated into current earnings. (2)
(1) This Remuneration Principle stresses the importance of risk adjustment in measuring performance, and the importance within that process of applying judgment and common sense. The FCA expects that a firm will apply qualitative judgements and common sense in the final decision about the performance-related components of variable remuneration pools. (2) [deleted]1(3) We consider good practice in this area to be represented by those firms who provide a quantitative reference or
(1) A firm’s risk-adjustment approach must reflect both ex-ante adjustment (which adjusts remuneration for intrinsic risks that are inherent in its business activities) and ex-post adjustment (which adjusts remuneration for crystallisation of specific risks events).(2) A firm must ensure that its total variable remuneration is generally considerably contracted where subdued or negative financial performance of the firm occurs, taking into account both current remuneration and
(1) A firm must ensure that its employees undertake not to use personal hedging strategies to undermine the risk alignment effects embedded in their remuneration arrangements. (2) A firm must ensure that its employees do not use remuneration- or liability-related contracts of insurance to undermine the risk alignment effects embedded in their remuneration arrangements.(3) A firm must maintain effective arrangements designed to ensure that employees comply with their undertaking.[Note:
In the FCA’s view, circumstances in which a person will be using a personal hedging strategy include (and are not limited to) entering into an arrangement with a third party under which the third party will make payments, directly or indirectly, to that person that are linked to or commensurate with the amounts by which the person's remuneration is subject to reductions.
A firm must ensure that the remuneration policy makes a clear distinction between criteria for setting:(1) basic fixed remuneration that primarily reflects an employee's professional experience and organisational responsibility, as set out in the employee's job description and terms of employment; and(2) variable remuneration that reflects performance in excess of that required to fulfil the employee's job description and terms of employment and that is subject to performance
(1) A firm must ensure that where remuneration is performance-related:(a) the total amount of remuneration is based on a combination of the assessment of the performance of:(i) the individual;(ii) the business unit concerned; and(iii) the overall results of the firm; and(b) when assessing individual performance, financial as well as non-financial criteria are taken into account.[Note: article 94(1)(a) of the CRD and Standard 6 of the FSB Compensation Standards]
A firm must ensure that the assessment of performance is set in a multi-year framework in order to ensure that:(1) the assessment process is based on longer-term performance; and(2) the actual payment of performance-based components of remuneration is spread over a period which takes account of the underlying business cycle of the firm and its business risks.[Note: article 94(1)(b) of CRD]
(1) A firm must ensure that guaranteed variable remuneration is not part of prospective remuneration plans.(2) A firm must not award, pay or provide guaranteed variable remuneration unless:(a) it is exceptional;(b) it occurs in the context of hiring new dual-regulated firms Remuneration Code staff;(c) the firm has a sound and strong capital base; and(d) it is limited to the first year of service.[Note: article 94(1)(d) and (e) of the CRD and Standard 11 of the FSB Compensation
(1) Guaranteed variable remuneration should be subject to the same requirements applicable to variable remuneration awarded by the firm including deferral, malus and clawback.(2) The FCA expects that guaranteed variable awards and retention awards should not be common practice for dual-regulated firms Remuneration Code staff and should be limited to rare, infrequent occurrences. The FCA expects a firm to provide prior notification to the FCA of any proposed retention1 awards.
A firm must set an appropriate ratio between the fixed and variable components of total remuneration and ensure that:(1) fixed and variable components of total remuneration are appropriately balanced; and5(2) the level of the fixed component represents a sufficiently high proportion of the total remuneration to allow the operation of a fully flexible policy on variable remuneration components, including the possibility to pay no variable remuneration component.5(3) [deleted]5[Note:
(1) A firm must ensure that a substantial portion, which is at least 50%, of any variable remuneration consists of an appropriate balance of:(a) subject to the legal structure of the firm concerned: shares or equivalent ownership interests; or share-linked instruments or equivalent non-cash instruments2; and (b) where possible, other instruments that in each case adequately reflect the credit quality of the firm as a going concern and are appropriate for use as variable remuneration,
(1) In relation to higher paid material risk takers a2 firm must not award, pay or provide a variable remuneration component unless a substantial portion of it, which is at least 40%, is deferred over a period which is not less than:(a) for dual-regulated firms Remuneration Code staff who perform a FCA-designated senior management function, five years,2 and vesting no faster than on a pro-rata basis;2(b) for dual-regulated firms Remuneration Code staff who perform a PRA-designated
(1) Deferred remuneration paid in:(a) shares or share-linked instruments should be made under a scheme which meets appropriate criteria, including risk adjustment of the performance measure used to determine the initial allocation of shares;(b) cash should also be subject to performance criteria.(2) The FCA would generally expect a firm to have a firm-wide policy (and group-wide policy, where appropriate) on deferral. The proportion deferred should generally rise with the ratio
A firm must ensure that:(1) any variable remuneration, including a deferred portion, is paid or vests only if it is sustainable according to the financial situation of the firm as a whole, and justified on the basis of the performance of the firm, the business unit and the individual concerned;(2) any variable remuneration is subject to clawback, such that it is only awarded if an amount corresponding to it can be recovered from the individual by the firm if the recovery is justified
(1) A firm should reduce unvested deferred variable remuneration when, as a minimum:(a) there is reasonable evidence of employee misbehaviour or material error; or(b) the firm or the relevant business unit suffers a material downturn in its financial performance; or(c) the firm or the relevant business unit suffers a material failure of risk management.(2) For performance adjustment purposes, awards of deferred variable remuneration made in shares or other non-cash instruments
(1) A firm must make all reasonable efforts to recover an appropriate amount corresponding to some or all vested variable remuneration where either of the following circumstances arise during the period in which clawback applies (including any part of such period occurring after the relevant employment has ceased):(a) there is reasonable evidence of employee misbehaviour or material error; or(b) the firm or the relevant business unit suffers a material failure of risk management.(2)
The governing body (or, where appropriate, the remuneration committee) should approve performance adjustment policies, including the triggers under which adjustment would take place. The FCA may ask firms to provide a copy of their policies and expects firms to make adequate records of material decisions to operate the adjustments.
(1) Subject to (2) to (7), the rules in SYSC 19D Annex 1.1R to 1.6R apply in relation to the prohibitions on dual-regulated firms Remuneration Code staff being remunerated in the ways specified in:(a) SYSC 19D.3.44R (guaranteed variable remuneration);(b) SYSC 19D.3.59R (1deferred variable remuneration);(c) SYSC 19D.3.61R(2) (performance adjustment – clawback); and(d) SYSC 19D Annex 1.10R (replacing payments recovered or property transferred).(2) Paragraph (1) applies only to those
(1) Sections 137H and 137I of the Act enable the FCA to make rules that render void any provision of an agreement that contravenes specified prohibitions in the dual-regulated firms Remuneration Code, and that provide for the recovery of any payment made, or other property transferred, in pursuance of such a provision.(2) SYSC 19D.3.66R and SYSC 19D.3.67R (together with SYSC 19D Annex 1) are:(a) rules referred to in (1) that render void provisions of an agreement that contravene
(1) This section applies to BIPRU Remuneration Code staff, except as set out in (3).(2) When establishing and applying the total remuneration policies for BIPRU Remuneration Code staff, a firm must comply with this section in a way and to the extent that is appropriate to its size, internal organisation and the nature, scope and complexity of its activities (the BIPRU remuneration principles proportionality rule).(3) Paragraphs (1) and (2) do not apply to the requirement for significant
BIPRU Remuneration Code staff comprises categories of staff including senior management, risk-takers, staff engaged in control functions 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.
A firm must: (1) maintain a record of its BIPRU Remuneration Code staff in line with the general record-keeping requirements (SYSC 9); and(2) take reasonable steps to ensure that its BIPRU Remuneration Code staff understand the implications of their status, including the potential for remuneration which does not comply with certain requirements of the BIPRU Remuneration Code to be rendered void and recoverable by the firm.
- (1)
In the FCA's view:
- (a)
- (b)
a person who performs a significant influence function for, or is a senior manager of, a firm would normally be expected to be part of the firm'sBIPRU Remuneration Code staff;
- (c)
the table in (2) provides a non-exhaustive list of examples of key positions that should, subject to (d), be within a firm's definition of staff who are risk takers;
- (d)
firms should consider how the examples in the table in (2) apply to their own organisational structure;
1 - (e)
firms may find it useful to set their own metrics to identify their risk takers based, for example, on trading limits; and
- (f)
a firm should treat a person as being BIPRU Remuneration Code staff in relation to remuneration in respect of a given performance year if they were BIPRU Remuneration Code staff for any part of that year.
[Note: The FCA has published guidance on the application of particular rules on remuneration structures in relation to individuals who are BIPRU Remuneration Code staff for only part of a given performance year. This guidance is available at www.fca.org.uk/firms/remuneration
.]
- (2)
High-level category
Suggested business lines
Heads of significant business lines (including regional heads) and any individuals or groups within their control who have a material impact on the firm's risk profile
Fixed income
Foreign exchange
Commodities
Securitisation
Sales areas
Investment banking (including mergers and acquisitions advisory)
Commercial banking
Equities
Structured finance
Lending quality
Trading areas
Research
Heads of support and control functions and other individuals within their control who have a material impact on the firm's risk profile
Credit/market/operational risk
Legal
Treasury controls
Human resources
Compliance
Internal audit
(1) A firm that is significant in terms of its size, internal organisation and the nature, scope and complexity of its activities must establish a remuneration committee. (2) The remuneration committee must be constituted in a way that enables it to exercise competent and independent judgment on remuneration policies and practices and the incentives created for managing risk, capital and liquidity. (3) The chairman and the members of the remuneration committee must be members
(1) A firm should be able to demonstrate that its decisions are consistent with an assessment of its financial condition and future prospects. In particular, practices by which remuneration is paid for potential future revenues whose timing and likelihood remain uncertain should be evaluated carefully and the governing body or remuneration committee (or both) should work closely with the firm's risk function in evaluating the incentives created by its remuneration system. (2)
A firm must ensure that employees engaged in control functions: (1) are independent from the business units they oversee;(2) have appropriate authority; and (3) are remunerated: (a) adequately to attract qualified and experienced staff; and(b) in line with the achievement of the objectives linked to their functions, independent of the performance of the business areas they control.
(1) A firm's risk management and compliance functions should have appropriate input into setting the remuneration policy for other business areas. The procedures for setting remuneration should allow risk and compliance functions to have significant input into the setting of individual remuneration awards where those functions have concerns about the behaviour of the individuals concerned or the riskiness of the business undertaken.(2) Contravention of (1) may be relied on as
(1) This Remuneration Principle is designed to manage the conflicts of interest which might arise if other business areas had undue influence over the remuneration of employees within control functions. Conflicts of interest can easily arise when employees are involved in the determination of remuneration for their own business area. Where these do arise they need to be managed by having in place independent roles for control functions (including, notably, risk management and
This Remuneration Principle underlines the link between a firm's variable remuneration costs and the need to manage its capital base, including forward-looking capital planning measures. Where a firm needs to strengthen its capital base, its variable remuneration arrangements should be sufficiently flexible to allow it to direct the necessary resources towards capital building.
A firm that benefits from exceptional government intervention must ensure that: (1) variable remuneration is strictly limited as a percentage of net revenues when it is inconsistent with the maintenance of a sound capital base and timely exit from government support;(2) it restructures remuneration in alignment with sound risk management and long-term growth, including when appropriate establishing limits to the remuneration of senior personnel; and(3) no variable remuneration
(1) Long-term incentive plans should be treated as pools of variable remuneration. Many common measures of performance for long-term incentive plans, such as earnings per share (EPS), are not adjusted for longer-term risk factors. Total shareholder return (TSR) includes dividend distributions in its measurement, which can also be based on unadjusted earnings data. If incentive plans mature within a two- to four-year period and are based on EPS or TSR, strategies can be devised
(1) A firm must ensure that its employees undertake not to use personal hedging strategies or remuneration- or liability-related contracts of insurance to undermine the risk-alignment effects embedded in their remuneration arrangements. (2) A firm must maintain effective arrangements designed to ensure that employees comply with their undertaking.
(1) Taking account of the BIPRU remuneration principles proportionality rule, the FCA does not generally consider it necessary for a firm to apply the rules in (2) where, in relation to an individual ("X"), both the following conditions are satisfied: (a) condition 1 requires that X’s variable remuneration is no more than 33% of total remuneration; and(b) condition 2 requires that X’s total remuneration is no more than 500,000.(2) The rules referred to in (1) relate to: (a) guaranteed
(1) A firm should not award, pay or provide guaranteed variable remuneration in hiring new BIPRU Remuneration Code staff (X) unless: (a) it has taken reasonable steps to ensure that the remuneration is not more generous in its amount or terms (including any deferral or retention periods) than the variable remuneration awarded or offered by X’s previous employer; and(b) it is subject to appropriate performance adjustment requirements.(2) Contravention of (1) may be relied on as
Variable remuneration can be awarded to BIPRU Remuneration Code staff in the form of retention awards where it is compatible with the BIPRU Remuneration Code general requirement to do so. The FCA considers this is likely to be the case only where a firm is undergoing a major restructuring and a good case can be made for retention of particular key staff members on prudential grounds. Proposals to give retention awards should form part of any notice of the restructuring proposals
(1) Regarding SYSC 19C.3.47R (3), the 50% minimum threshold for instruments must be applied equally to the non-deferred and the deferred components; in other words, firms must apply the same chosen ratio between instruments and cash for their total variable remuneration to both the upfront and deferred components. (2) This simplified example illustrates the operation of (1). The variable remuneration of a material risk taker (X) is 100, and by SYSC 19C.3.49R (3) X is required
(1) A firm must not award, pay or provide a variable remuneration component unless a substantial portion of it, which is at least 40%, is deferred over a period of not less than three to five years.(2) Remuneration under (1) must vest no faster than on a pro-rata basis. (3) In the case of a variable remuneration component: (a) of a particularly high amount; or(b) payable to a director of a firm that is significant in its size, internal organisation and the nature, scope and complexity
(1) Deferred remuneration paid in shares or share-linked instruments should be made under a scheme which meets appropriate criteria, including risk adjustment of the performance measure used to determine the initial allocation of shares. Deferred remuneration paid in cash should also be subject to performance criteria.(2) The FCA generally expects a firm to have a firm-wide policy (and group-wide policy, where appropriate) on deferral. The proportion deferred should generally
A firm must ensure that any variable remuneration, including a deferred portion, is paid or vests only if it is sustainable according to the financial situation of the firm as a whole, and justified according to the performance of the firm, the business unit and the individual concerned.[Note: Standards 6 and 9 of the FSB Compensation Standards]
(1) A firm should reduce unvested deferred variable remuneration when, as a minimum: (a) there is reasonable evidence of employee misbehaviour or material error; or(b) the firm or the relevant business unit suffers a material downturn in its financial performance; or(c) the firm or the relevant business unit suffers a material failure of risk management.(2) For performance adjustment purposes, awards of deferred variable remuneration made in shares or other non-cash instruments
(1) Variable remuneration may be justified, for example, to incentivise employees involved in new business ventures which could be loss-making in their early stages. (2) The governing body (or, where appropriate, the remuneration committee) should approve performance adjustment policies, including the triggers under which adjustment would take place. The FCA may ask firms to provide a copy of their policies and expects firms to make adequate records of material decisions to operate
1A management company must establish and apply remuneration policies and practices for UCITS Remuneration Code staff that: (1) are consistent with and promote sound and effective risk management;(2) do not encourage risk taking which is inconsistent with the risk profiles or the instrument constituting the fund or the prospectus, as applicable, of the UCITS it manages; (3) do not impair the management company’s compliance with its duty to act in the best interests of the UCITS
(1) UCITS Remuneration Code staff comprise those categories of staff whose professional activities have a material impact on the risk profiles of: (a) the management company; or(b) the UCITS that the management company manages.(2) UCITS Remuneration Code staff must comprise: (a) senior management;(b) risk takers;(c) staff engaged in control functions; and(d) any employees receiving total remuneration that takes them into the same remuneration bracket as senior management and risk
(1) When establishing and applying the remuneration policies for UCITS Remuneration Code staff, a management company must comply with the UCITS remuneration principles in a way and to the extent that is appropriate to: (a) its size;(b) internal organisation; and(c) the nature, scope and complexity of its activities.(2) Paragraph (1) does not apply to the requirement for significant management companies to have a remuneration committee (SYSC 19E.2.9R).(3) The UCITS remuneration
(1) A management company must ensure that its management body in its supervisory function: (a) adopts and reviews at least annually the general principles of the remuneration policy; and(b) is responsible for the implementation of the general principles of the remuneration policy.(2) The tasks in (1) must be undertaken only by members of the management body who:(a) do not perform any executive functions in the management company concerned; and (b) have expertise in risk management
(1) A management company must establish a remuneration committee if it is significant in terms of: (a) its size, or the size of the UCITS that it manages2; (b) [deleted]2(c) the complexity of its internal organisation; and2(d) the nature, the scope and the complexity of its activities.(2) The remuneration committee must be constituted in a way that enables it to exercise competent and independent judgment on: (a) remuneration policies and practices; and(b) the incentives created
A management company must ensure the remuneration of the senior officers in the risk management and compliance functions is directly overseen by: (1) the remuneration committee; or(2) if such a committee has not been established, the management body in its supervisory function.[Note: article 14b(1)(f) of the UCITS Directive]
(1) A management company must ensure that, where remuneration is performance related, the total amount of remuneration is based on a combination of: (a) the assessment of the performance of the individual and of the business unit or UCITS concerned, and of their risks; and (b) the overall results of the management company.(2) When assessing individual performance, financial and non-financial criteria must be taken into account.[Note: article 14b(1)(g) of the UCITS Directive]
A management company must ensure that the assessment of performance is set in a multi-year framework appropriate to any holding period recommended to the investors of the UCITS managed by the management company to ensure that the: (1) assessment process is based on the long-term performance of the UCITS and its investment risks; and (2) actual payment of the performance-based components of remuneration is spread over the same period. [Note: article 14b(1)(h) of the UCITS Dire
A management company must ensure that: (1) fixed and variable components of total remuneration are appropriately balanced; and (2) the fixed component represents a sufficiently high proportion of the total remuneration to allow the operation of a fully flexible policy on variable remuneration components, including the possibility to pay no variable remuneration component.[Note: article 14b(1)(j) of the UCITS Directive]
(1) Taking account of the remuneration principles proportionality rule in SYSC 19E.2.4R, the FCA does not generally consider it necessary for a management company to apply the rules referred to in (2) where, in relation to an individual (“X”), both the following conditions are satisfied: (a) Condition 1 is that X’s variable remuneration is no more than 33% of total remuneration; and (b) Condition 2 is that X’s total remuneration is no more than £500,000. (2) The rules to which
(1) Subject to the legal structure of the UCITS and the instrument constituting the fund, a management company must ensure that a substantial portion, and in any event at least 50%, of any variable remuneration component consists of: (a) units or shares of the UCITS concerned; or (b) equivalent ownership interests in the UCITS concerned; or (c) share-linked instruments relating to the UCITS concerned; or (d) equivalent non-cash instruments relating to the UCITS concerned with
(1) If the management of UCITS accounts for less than 50% of the total portfolio managed by the management company, the minimum of 50% in SYSC 19E.2.18R(1) does not apply. (2) However, in the circumstances in (1) the management company is still required to ensure that a substantial portion of any variable remuneration component consists of the instruments in SYSC 19E.2.18R(1) and appropriately reflects the extent of the management of UCITS by the management company. (3) In the
(1) A management company must not award, pay or provide a variable remuneration component unless a substantial portion, and in any event at least 40%, of the variable remuneration component, is deferred over a period which is:(a) appropriate in view of any holding period recommended to the investors of the UCITS concerned; and(b) correctly aligned with the nature of the risks of the UCITS in question.(2) The period referred to in (1) must be at least three years.(3) Remuneration
(1) £500,000 should be considered a particularly high amount for the purpose of SYSC 19E.2.20R(4).(2) While any variable remuneration component of £500,000 or more paid to UCITS Remuneration code staff should be subject to 60% deferral, management companies should also consider whether lesser amounts should be considered to be ‘particularly high’. (3) Management companies should take into account, for example, whether there are significant differences within UCITS Remuneration
A management company must ensure that any variable remuneration, including a deferred portion, is paid or vests only if it is: (1) sustainable according to the financial situation of the management company as a whole; and(2) justified according to the performance of: (a) the UCITS;(b) the business unit; and(c) the individual concerned.[Note: first sub-paragraph of article 14b(1)(o) of the UCITS Directive]
(1) The total variable remuneration should generally be considerably contracted where subdued or negative financial performance of the management company or of the UCITS concerned occurs.(2) When considering (1), management companies should take into account both current compensation and reductions in payouts of amounts previously earned, including through malus or clawback arrangements.[Note: second sub-paragraph of article 14b(1)(o) of the UCITS Directive]
A management company must ensure that the measurement of performance used to calculate variable remuneration components, or pools of variable remuneration components, includes a comprehensive adjustment mechanism to integrate all relevant types of current and future risks.[Note: article 14b(1)(l) of the UCITS Directive]
A management company must ensure that its employees undertake not to use any of the following to undermine the risk alignment effects embedded in their remuneration arrangements:(1) personal hedging strategies; or (2) remuneration-related insurance; or(3) liability-related insurance.[Note: article 14b(1)(q) of the UCITS Directive]
(1) This section applies in relation to Remuneration Code staff, except as set out in (3).(2) When establishing and applying the total remuneration policies for Remuneration Code staff, a firm must comply with this section in a way and to the extent that is appropriate to its size, internal organisation and the nature, the scope and the complexity of its activities (the remuneration principles proportionality rule).(3) Paragraphs (1) and (2) do not apply to the requirement for
A firm must:(1) maintain a record of its Remuneration Code staff in accordance with the general record-keeping requirements (SYSC 9); and(2) take reasonable steps to ensure that its Remuneration Code staff understand the implications of their status as such, including the potential for remuneration which does not comply with certain requirements of the Remuneration Code to be rendered void and recoverable by the firm.
(1) A6firm that is significant in terms of its size, internal organisation and the nature, the scope and the complexity of its activities must establish a remuneration committee. 3(2) The remuneration committee must be constituted in a way that enables it to exercise competent and independent judgment on remuneration policies and practices and the incentives created for managing risk, capital and liquidity.(3) The chairman and the members of the remuneration committee must be
(1) A firm should be able to demonstrate that its decisions are consistent with an assessment of its financial condition and future prospects. In particular, practices by which remuneration is paid for potential future revenues whose timing and likelihood remain uncertain should be evaluated carefully and the governing body or remuneration committee (or both) should work closely with the firm's risk function in evaluating the incentives created by its remuneration system.(2) The
A firm must ensure that employees engaged in control functions:(1) are independent from the business units they oversee;(2) have appropriate authority; and (3) are remunerated:(a) adequately to attract qualified and experienced staff; and(b) in accordance with the achievement of the objectives linked to their functions, independent of the performance of the business areas they control.[Note:3article 92(2)(e) of CRD and Standard 2 of the FSB Compensation Standards]3
A firm must ensure that the remuneration of the senior officers in risk management and compliance functions is directly overseen by the remuneration committee referred to in SYSC 19A.3.12 R, or, if such a committee has not been established, by the governing body in its supervisory function.[Note:3article 92(2)(f) of CRD]3
A firm that benefits from exceptional government intervention must ensure that:(1) variable remuneration is strictly limited as a percentage of net revenues when it is inconsistent with the maintenance of a sound capital base and timely exit from government support;(2) it restructures remuneration in a manner aligned with sound risk management and long-term growth, including when appropriate establishing limits to the remuneration of3members of its management body; and3(3) no
The FCA6 would normally expect it to be appropriate for the ban on paying variable remuneration to 3members of the management body of a firm that benefits from exceptional government intervention to apply only in relation to 3members of the management body who were in office at the time that the intervention was required.33
(1) A firm must ensure that any measurement of performance used to calculate variable remuneration components or pools of variable remuneration components:(a) includes adjustments for all types of current and future risks and takes into account the cost and quantity of the capital and the liquidity required; and(b) takes into account the need for consistency with the timing and likelihood of the firm receiving potential future revenues incorporated into current earnings.(2) A
(1) A firm must ensure that its employees undertake not to use personal hedging strategies or remuneration- or liability-related contracts of insurance to undermine the risk alignment effects embedded in their remuneration arrangements.(2) A firm must maintain effective arrangements designed to ensure that employees comply with their undertaking.[Note:3article 94(1)(p) of CRD and Standard 14 of the FSB Compensation Standards]3
In the FCA’s6 view, circumstances in which a person will be using a personal hedging strategy include (and are not limited to)6 entering into an arrangement with a third party under which the third party will make payments, directly or indirectly, to that person that are linked to or commensurate with the amounts by which the person'sremuneration is subject to reductions.
(1) Taking account of the remuneration principles proportionality rule, the appropriate regulator8 does not generally consider it necessary for a firm to apply the rules referred to in (2) where, in relation to an individual ("X"), both the following conditions are satisfied:8(a) Condition 1 is that Xs variable remuneration is no more than 33% of total remuneration; and(b) Condition 2 is that Xs total remuneration is no more than 500,000.(2) The rules referred to in (1) are those
4A firm must ensure that the remuneration policy makes a clear distinction between criteria for setting:(1) basic fixed remuneration that primarily reflects an employee's professional experience and organisational responsibility as set out in the employee's job description and terms of employment; and(2) variable remuneration that reflects performance in excess of that required to fulfil the employee's job description and terms of employment and that is subject to performance
A firm must ensure that guaranteed variable remuneration is not part of prospective remuneration plans.3 A firm must not award, pay or provide guaranteed variable remuneration unless:3(1) 3it is exceptional;(2) 3it occurs in the context of hiring new Remuneration Code staff;3(3) 3the firm has a sound and strong capital base; and3(4) 3it is limited to the first year of service.[Note:3article 94(1)(d) and (e) of CRD and Standard 11 of the FSB Compensation Standards]3
3A firm must ensure that remuneration packages relating to compensation for, or buy out from, an employee's contracts in previous employment align with the long term interests of the firm and are subject to appropriate retention, deferral and performance and clawback arrangements.[Note: article 94(1)(i) of CRD]
A firm must set an 5appropriate ratio 5between the fixed and variable components of total remuneration and ensure that:(1) fixed and variable components of total remuneration are appropriately balanced;3(2) the level of the 5fixed component represents a sufficiently high proportion of the total remuneration to allow the operation of a fully flexible policy on variable remuneration components, including the possibility to pay no variable remuneration component3; and3(3) subject
3A firm may set a higher maximum level of the 5ratio between the fixed and variable components of total remuneration provided:555(1) the overall level of the variable component does not exceed 200% of the fixed component of the total remuneration for each Remuneration Code staff; and55(2) is approved by the shareholders or owners or members of the firm in accordance with SYSC 19A.3.44B R.[Note: article 94(1)(g)(ii) of CRD]
(1) A firm must ensure that a substantial portion, which is at least 50%, of any variable remuneration consists of an appropriate balance of:(a) shares or equivalent ownership interests, subject to the legal structure of the firm concerned, or share-linked instruments or equivalent non-cash instruments in the case of a non-listed firm; and(b) 3where possible other instruments which are eligible as Additional Tier 1 instruments or are eligible as Tier 2 instruments or other instruments
(1) A firm must not award, pay or provide a variable remuneration component unless a substantial portion of it, which is at least 40%, is deferred over a period which is not less than three to five years.(2) Remuneration under (1) must vest no faster than on a pro-rata basis. (3) In the case of a variable remuneration component: (a) of £500,000 or more;6 or(b) payable to a director of a firm that is significant in terms of its size, internal organisation and the nature, scope
(1) Deferred remuneration paid in:6(a) shares or share-linked instruments should be made under a scheme which meets appropriate criteria, including risk adjustment of the performance measure used to determine the initial allocation of shares; and6(b) cash should also be subject to performance criteria.6(2) The FCA6 would generally expect a firm to have a firm-wide policy (and group-wide policy, where appropriate) on deferral. The proportion deferred should generally rise with
(1) [deleted]6(2) The governing body (or, where appropriate, the remuneration committee) should approve performance adjustment policies, including the triggers under which adjustment would take place. The FCA6 may ask firms to provide a copy of their policies and expects firms to make adequate records of material decisions to operate the adjustments.
(1) Subject to (1A) to (3), the rules1 in SYSC 19A Annex 1.1R to 1.4R1 apply in relation to the prohibitions on Remuneration Code staff being remunerated in the ways specified in:11(a) SYSC 19A.3.40 R (guaranteed variable remuneration);(b) SYSC 19A.3.49 R (6deferred variable remuneration); and(c) (replacing payments recovered or property transferred).(1A) Paragraph (1) applies only to those prohibitions as they apply in relation to a firm that satisfies at least one of the conditions
(1) Sections 137H and 137I of the Act enables the FCA6 to make rules that render void any provision of an agreement that contravenes specified prohibitions in the Remuneration Code, and that provide for the recovery of any payment made, or other property transferred, in pursuance of such a provision. SYSC 19A.3.53A R and1SYSC 19A.3.54 R (together with SYSC 19A Annex 1) are such rules1 and render1 void provisions of an agreement that contravene the specified prohibitions on guaranteed
AIFM Remuneration Code staff comprise those categories of staff whose professional activities have a material impact on the risk profiles of the AIFMs or of the AIFs the AIFM manages. This includes senior management, risk takers, control functions, and any employees receiving total remuneration that takes them into the same remuneration bracket as senior management and risk takers.[Note: article 13(1) of AIFMD]
(1) When establishing and applying the total remuneration policies for AIFM Remuneration Code staff (inclusive of salaries and discretionary pension benefits), an AIFM must comply with the AIFM remuneration principles in a way and to the extent that is appropriate to its size, internal organisation and the nature, scope and complexity of its activities.(2) Paragraph (1) does not apply to the requirement for significant AIFMs to have a remuneration committee (SYSC 19B.1.9 R).(3)
(1) An AIFM that is significant in terms of its size, internal organisation and the nature, the scope and the complexity of its activities must establish a remuneration committee. (2) The remuneration committee must be constituted in a way that enables it to exercise competent and independent judgment on remuneration policies and practices, and the incentives created for managing risk.(3) The chairman and the members of the remuneration committee must be members of the governing
(1) 2Taking account of the remuneration principles proportionality rule in SYSC 19B.1.4 R, the FCA does not generally consider it necessary for a firm to apply the rules referred to in (2) where, in relation to an individual ("X"), both of the following conditions are satisfied:(a) Condition 1 is that X’s variable remuneration is no more than 33% of total remuneration; and(b) Condition 2 is that X’s total remuneration is no more than £500,000.(2) The rules referred to in (1) are
(1) 2£500,000 is a particularly high amount for the purpose of SYSC 19B.1.18R (4).(2) Paragraph (1) is without prejudice to the possibility of lower sums being considered a particularly high amount.(3) Whilst any variable remuneration component of £500,000 or more paid to AIFM Remuneration Code staff should be subject to 60% deferral, firms should also consider whether lesser amounts should be considered to be 'particularly high', taking account, for example, of whether there
There is power in the Act for the Treasury to specify the circumstances in which a person is or is not to be regarded as carrying on regulated activities by way of business. The Business Order has been made using this power (partly reflecting differences in the nature of the different activities). As such, the business test for insurance distribution activity1 is distinguished from the standard test for 'investment business' in article 3 of the Business Order. Under article 3(4)
(1) As regards PERG 5.4.2G(1), the Business Order does not provide a definition of ‘remuneration’, however ‘remuneration’ is defined in the IDD. Article 2(1)(9) of the IDD defines ‘remuneration’ to mean any commission, fee, charge or other payment, including an economic benefit of any kind or any other financial or non-financial advantage or incentive offered or given in respect of insurance distribution activities.1(2) In the FCA’s view, ‘remuneration’ in the Business Order follows
As regards PERG 5.4.2G (2), in the FCA's view, for a person to take up or pursue insurance distribution activity by way of business, the person1 will usually need to be carrying on those activities with a degree of regularity. The person will also usually need to be carrying on the activities for commercial purposes. That is to say, the person1 will normally be expecting to gain a direct financial benefit of some kind. Activities carried on out of friendship or for altruistic
PERG 5.4.8 G contains a table that summarises the main issues surrounding the business test as applied to insurance distribution activities1 and that may assist persons to determine whether they will need authorisation or exemption. The approach taken in the table involves identifying factors that, in the FCA's view, are likely to play a part in the analysis. Indicators are then given as to the significance of each factor to the person's circumstances. By analysing the indicators
Table: Carrying on insurance distribution1 activities 'for remuneration' and 'by way of business'
Carrying on insurance distribution1 activities 'for remuneration' and 'by way of business' |
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'For remuneration' |
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Factor |
Indicators that P does not carry on activities "for remuneration" |
Indicators that P does carry on activities "for remuneration" |
Direct remuneration, whether received from the customer or the insurer/broker (cash or benefits in kind such as tickets to the opera, a reduction in other insurance premiums, a remission of a debt or any other benefit capable of being measured in money's worth) |
P does not receive any direct remuneration specifically identified as a reward for P’s carrying on insurance distribution activities1. |
P receives direct remuneration specifically identified as being a reward for P’s carrying on insurance distribution activities1. |
Indirect remuneration (such as any form of economic benefit as may be explicitly or implicitly agreed between P and the insurer/broker or P's customer – including, for example, through the acceptance of P's terms and conditions or mutual recognition of the economic benefit that is likely to accrue to P). An indirect economic benefit can include expectation of making a profit of some kind as a result of carrying on insurance distribution activities1 as part of other services. |
P does not obtain any form of indirect remuneration through an economic benefit other than one which is not likely to have a material effect on P's ability to make a profit from P’s1 other activities. |
P obtains an economic benefit that: (a) is explicitly or implicitly agreed between P and the insurer/broker or P's customer; and (b) has the potential to go beyond mere cost recovery through fees or other benefits received for providing a package of services that includes insurance distribution activities1 but where no particular part of the fees is attributable to insurance distribution activities1. This could include where insurance distribution activities1 are likely to:
P charges 1customers a greater amount for other goods or services than would be the case if P were not also carrying on insurance distribution activities1 for those customers and this:
|
Recovery of costs |
P receives no benefits of any kind (direct or indirect) in respect of his insurance distribution activities1 beyond the reimbursement of his actual costs incurred in carrying on the activity (including receipt by P of a sum equal to the insurance premium that P is to pass on to the insurer or broker). |
P receives benefits of any kind (direct or indirect) in respect of his insurance distribution activities1 which go beyond the reimbursement of his actual costs incurred in carrying on the activity. |
'By way of business' |
||
Factor |
Indicators that P does not carry on activities "by way of business" |
Indicators that P does carry on activities "by way of business" |
Regularity/ frequency |
Involvement is one-off or infrequent (for instance, once or twice a year) provided that the transaction(s) is not of such size and importance that it is essential to the success of P's other business activities. Transactions do not result from formal arrangements (for instance, occasional involvement purely as a result of an unsolicited approach). |
Involvement is frequent (for instance, once a week). Involvement is infrequent but the transactions are of such size or importance that they are essential to the success of P's other business activities. P has formal arrangements which envisage transactions taking place on a regular basis over time (whether or not such transactions turn out in practice to be regular). |
Holding out |
P does not hold him or herself1 out as providing a professional service that includes insurance distribution activities1 ( ‘professional’ meaning ‘not the services of a layman’1). |
P holds him or herself1 out as providing a professional service that includes insurance distribution activities1. |
Relevance to other activities/ business |
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Commercial benefit |
P receives no direct or indirect pecuniary or economic benefit. P is a layman and acting in that capacity. P would not obtain materially less income from P’s1 main activities if they did not include insurance distribution activities1. |
P receives a direct or indirect pecuniary or economic benefit from carrying on insurance distribution activities1 – such as a fee, a benefit in kind or the likelihood of materially enhanced sales of other goods or services that P provides. P would obtain materially less income from P’s1 main activities if they did not include insurance distribution activities1. |
A credit intermediary means a person who:(1) is not acting as a creditor or notary; and(2) is not merely introducing, either directly or indirectly, a consumer to a creditor or credit intermediary; and(3) carries out the following activities:(a) presenting or offering regulated mortgage contracts to consumers; (b) assisting consumers by undertaking preparatory work or other pre-contractual administration in respect of regulated mortgage contracts, other than as referred to in
In the FCA's view, credit intermediation under the MCD covers the same activities as the regulated activity of arranging (bringing about) regulated mortgage contracts, except that: (1) credit intermediation only applies if the intermediary acts for remuneration; and(2) the MCD does not cover the regulated mortgage contracts listed in PERG 4.10A.5 G; and(3) the MCD only applies to services provided to consumers;(4) if the intermediary only acts for the creditor, the MCD intermediation
Where advising on regulated mortgage contracts falls within the MCD, the Regulated Activities Order exclusions in PERG 4.10A.2G (3) do not apply to this activity. Advisers should note that: (1) if the adviser does not act for remuneration, the MCD does not apply; (2) the MCD does not cover the regulated mortgage contracts listed in PERG 4.10A.5 G; (3) the MCD only applies to advisory services provided to consumers;(4) the MCD only applies to personal recommendations.
(1) If a firm'sremuneration policy is not aligned with effective risk management, it is likely that employees will have incentives to act in ways that might undermine effective risk management. (2) The BIPRU Remuneration Code covers all aspects of remuneration that could have a bearing on effective risk management including salaries, bonuses, long-term incentive plans, options, hiring bonuses, severance packages and pension arrangements. In applying the BIPRU Remuneration Code,
(1) The specific remuneration requirements in this chapter may apply only to certain categories of employee. However, the FCA expects firms, in complying with the BIPRU Remuneration Codegeneral requirement, to apply certain principles on a firm-wide basis.(2) In particular, the FCA considers that firms should apply the principle relating to guaranteed variable remuneration on a firm-wide basis (Remuneration Principle 12(c); SYSC 19C.3.40 R to SYSC 19C.3.43 G. (3) The FCA also
6Article 72A exempts any financial promotion made to an employee by or on behalf of a person (“A”) in relation to a group personal pension scheme or a stakeholder pension scheme. This is subject to certain requirements as follows:(1) the employer and A must have entered into a written contract specifying the terms on which the communication may be made;(2) in the case of a communication made by a person (“B”) on behalf of A, A and B must also have entered into a written contract
6Article 72C exempts any financial promotion made to an employee by or on behalf of a person (“A”) in relation to work-related insurance. This is subject to certain requirements as follows:(1) the employer and A must have entered into a written contract specifying the terms on which the communication may be made;(2) in the case of a communication made by a person (“B”) on behalf of A, A and B must also have entered into a written contract specifying the terms on which the communication
6Article 72D exempts any financial promotion made by an employer to an employee in relation to a staff mortgage. This is subject to certain requirements as follows:(1) where the provider of the staff mortgage is an undertaking in the same group as the employer, the employer must not receive or have received, any direct financial benefit (including any commission, discount, remuneration or reduction in premium) as a result of making the communication; and(2) where the communication
6Article 72E exempts any financial promotion made to an employee by or on behalf of a person (“A”) in relation to a staff mortgage. This is subject to certain requirements as follows:(1) the employer and A must have entered into a written contract specifying the terms on which the communication may be made;(2) in the case of a communication made by a person (“B”) on behalf of A, A and B must also have entered into a written contract specifying the terms on which the communication
9Article 72F exempts any financial promotion which is made to an employee by or on behalf of a person in relation to an exempt staff loan. An exempt staff loan is defined as a credit agreement which is:(1) offered by a lender to a borrower as an incident of employment with the lender, or with an undertaking in the same group as the lender11; and(2) an exempt agreement under a provision of article 60G (exempt agreements: exemptions relating to the total charge for credit) of the
(1) This chapter applies to a UK UCITS management company in relation to remuneration paid, provided or awarded by any person to the extent that it is paid, provided or awarded in connection with employment by a management company. (2) Paragraph (1) is without prejudice to the meaning of remuneration elsewhere in the Handbook.
(1) A Chief Risk Officer should:(a) be accountable to the firm'sgoverning body for oversight of firm-wide risk management;(b) be fully independent of a firm's individual business units;(c) have sufficient authority, stature and resources for the effective execution of his responsibilities; (d) have unfettered access to any parts of the firm's business capable of having an impact on the firm's risk profile; (e) ensure that the data used by the firm to assess its risks are fit for
(1) The FCA9 considers that, while the firm'sgoverning body is ultimately responsible for risk governance throughout the business, firms should consider establishing a governing body risk committee to provide focused support and advice on risk governance.(2) Where a firm has established a governing body risk committee, its responsibilities will typically include:(a) providing advice to the firm'sgoverning body on risk strategy, including the oversight of current risk exposures
(1) Except as set out in 4(3), a firm must apply the remuneration requirements in SYSC 19D.3 (Remuneration principles) in relation to:(a) remuneration awarded, whether pursuant to a contract or otherwise, on or after 1 January 2011;(b) remuneration due on the basis of contracts concluded before 1 January 2011 which is awarded or paid on or after 1 January 2011; and(c) remuneration awarded, but not yet paid, before 1 January 2011, for services provided in 2010.[Note: article 3(2)
(1) In addition to the notification requirements in the dual-regulated firms Remuneration Code2, general circumstances in which the FCA expects to be notified by firms of matters relating to their compliance with requirements under the regulatory system are set out in SUP 15.3 (General notification requirements).(2) For remuneration matters in particular, those circumstances should take into account unregulated activities, as well as regulated activities and the activities of
The FCA's policy on individual guidance is set out in SUP 9. Firms should particularly note the policy on what the FCA considers to be a reasonable request for guidance (see SUP 9.2.5G). For example, where a firm is seeking guidance on a proposed remuneration structure, the FCA will expect the firm to provide a detailed analysis of how the structure complies with the dual-regulated firms Remuneration Code, including the general requirement for remuneration policies, procedures
(1) The dual-regulated firms Remuneration Code covers all aspects of remuneration that could have a bearing on effective risk management, including salaries, bonuses, long-term incentive plans, options, hiring bonuses, severance packages and pension arrangements.(2) As with other aspects of a firm's systems and controls, in accordance with SYSC 4.1.2R (general organisational requirements) remuneration policies, procedures and practices must be comprehensive and proportionate to
A firm must apply the remuneration requirements in SYSC 19C.3 to: (1) remuneration awarded, whether under a contract or otherwise, on or after 1 January 2014; (2) remuneration due on the basis of contracts concluded before 1 January 2014 which is awarded or paid on or after 1 January 2014; and(3) remuneration awarded, but not yet paid, before 1 January 2014, for services provided in 2013.
(1) The BIPRU Remuneration Code does not contain specific notification requirements. However, general circumstances in which the FCA expects to be notified by firms of matters relating to their compliance with requirements under the regulatory system are set out in SUP 15.3 (General notification requirements). (2) In particular, in relation to remuneration matters, such circumstances should take into account unregulated activities as well as regulated activities and the activities
The FCA's policy on individual guidance is set out in SUP 9. Firms should particularly note the policy on what the FCA considers to be a reasonable request for guidance (see SUP 9.2.5 G). For example, where a firm is seeking guidance on a proposed remuneration structure, the FCA will expect the firm to provide a detailed analysis of how the structure complies with the BIPRU Remuneration Code, including the general requirement for remuneration policies, procedures and practices
In order to enable the compliance function to discharge its responsibilities properly and independently, a firm that is a20management company or an operator of an electronic system in relation to lending20 must ensure that the following conditions are satisfied:168(1) the compliance function must have the necessary authority, resources, expertise and access to all relevant information;(2) a compliance officer must be appointed and must be responsible for the compliance function
624In setting the method of determining the remuneration of relevant persons involved in the compliance function:1111(1) [deleted]231114(2) 11[deleted]2371611(3) firms that SYSC 19D applies to will also need to comply with the dual-regulated firms Remuneration Code; 23(4) firms that the remuneration part of the PRA Rulebook16 applies to will also need to comply with it; and23(5) 23firms that SYSC 19G applies to will also need to comply with the MIFIDPRU Remuneration Code.7
(1) The5 exclusion for groups and joint enterprises in article 69 of the Regulated Activities Order (Groups and joint enterprises) does not apply to transactions relating to contracts of insurance. This will affect5 a company providing services for:(a) other members of its group; or(b) other participants in a joint enterprise of which it is a participant.(2) Such companies might typically provide risk or treasury management or administration services which may include regulated
Article 4(4A) of the Regulated Activities Order (Specified activities: general) disapplies certain exclusions where a person, for remuneration, takes up or pursues insurance distribution or reinsurance distribution5 (as defined in articles 2.1(1), 2.1(2) and 2.2 of the IDD5) and PERG 5.16.2G5) in relation to a risk or commitment located in the United Kingdom. In relation to a contract of insurance entered into before IP completion day, article 4(4A) applies in relation to a risk
3(1) A firm must apply the remuneration requirements in SYSC 19A.3 other than SYSC 19A.3.44 R (3) and SYSC 19A.3.44A R in relation to:(a) remuneration awarded, whether pursuant to a contract or otherwise, on or after 1 January 2011;3(b) remuneration due on the basis of contracts concluded before 1 January 2011 which is awarded or paid on or after 1 January 2011; and3(c) remuneration awarded, but not yet paid, before 1 January 2011, for services provided in 2010.3[Note: article
(1) The aim of the Remuneration Code is to ensure that firms have risk-focused remuneration policies, which are consistent with and promote effective risk management and do not expose them to excessive risk. It expands upon the general organisational requirements in SYSC 4.(2) The Remuneration Code implements the main provisions of the 3CRD which relate to remuneration. 7In applying the Remuneration Code, firms should comply with the EBA “Guidelines on sound remuneration policies