Overview of the Code
All firms that have to meet the Code are required to ensure that their remuneration policies and practices are consistent with and promote sound and effective risk management. The Code covers all aspects of remuneration including salaries, bonuses, long-term incentive plans, options, hiring bonuses, severance packages and pension arrangements. Some of the main features of the Code or its application include:
- Who it applies to the Code applies to senior management, risk takers and staff in control functions, collectively known as Code Staff.
- Deferral – at least 40% of a bonus must be deferred over a period of at least three years for all Code Staff. At least 60% must be deferred for the most senior management or when an individual’s bonus is more than £500,000.
- Proportion in shares at least 50% of any bonus must be made in shares, share-linked instruments or other equivalent non-cash instruments of the firm. These shares should be subject to an appropriate retention period.
- Guarantees no guaranteed bonuses of more than one year. Guarantees may only be given in exceptional circumstances to new hires for the first year of service. The amount should not exceed the remuneration (in terms or amount; including any deferral or retention periods) from the previous employer. It should also be subject to appropriate performance adjustment requirements. This applies to all employees.
- Disclosure – of fraud or significant Code breaches to the FCA. Some firms (those subject to BIPRU) must disclose details of firm’s remuneration policies at least annually.
- Application of Code on proportionate basis – The FCA applies the Code taking account of an institution’s size, internal organisation and nature and complexity of their activities. Depending on which one of 4 tiers an organisation falls into, minimum expectations of compliance apply.