The FBF (French Banking Federation) has published the professional operating rules referred to in the government regulation of the 3rd of November 2009 relating to the compensation of personnel whose activities may have a material impact on banks' risk exposure, and which clarify the provisions therein. These professional rules, applicable as from the 2009 financial year for compensation paid at the beginning of 2010, set out the principles adopted by the G20 on 24 and 25 September 2009.
French banks are therefore the first to implement these international principles just as they were already in the forefront in making commitments on market professionals' variable compensation as from February 2009, commitments which were supplemented in August.
These professional rules define the governance of compensation policies and the rules applicable to market professionals' variable compensation, notably with the implementation of a bonus-malus system. They apply to banking groups (1) for financial market professionals whose activities may have a material impact on their risk exposure. The system aims to avoid excessive risk-taking by strengthening the coherence between the behaviour of staff concerned and the company's long-term objectives. The system is controlled by the French Commission Bancaire in accordance with regulation 97-02.
The professional rules concerning compensation also apply to company executives, but may be adapted, under the control of the French Commission Bancaire, by the deliberating body in relation to its role in the risk-taking process and taking into account the legislation, regulations and other measures which also apply to it, notably the AFEP - MEDEF (3) code on corporate governance and the regulatory provisions adopted in response to the financial crisis applicable until the 31st of December 2010.
The variable component of the compensation is calculated based on the achievement of financial and non-financial objectives defined individually and collectively. The basis of assessment reflects the net profit of operations after taking into account all the costs (essentially the cost of risk, liquidity and capital remuneration).
The main provisions cover :
- This figure must represent at least 60% for the highest compensation levels.
- Payment is deferred over at least three financial years subsequent to the year in which the variable compensation is allocated and it is conditional (cf bonus-malus system).
(1) In accordance with conditions to be specified by the competent professional bodies, the rules are intended to apply also to financial market professionals in investment companies, asset management companies, insurance companies, private equity companies.
(2) According to the criteria of the AFEP-MEDEF corporate governance code for listed companies dated December 2008.
(3) AFEP - French Association of Private Companies; MEDEF - French Employers' Federation
APPENDICES: Professional rules concerning the governance variable compensation of financial market professionals.
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