CoachA bonus cap is a legal limit on the ratio of variable to fixed pay. In the EU’s capital requirements directive the variable component “shall not exceed 100 % of the fixed component” for each individual whose work has a material impact on the institution’s risk, with up to 200 % allowed if the owners approve.
Ejemplos
Example 15.2 (The cap and the mix)
A bank wants to offer a risk-taker a total of € 1 000 000 in a normal year. Under the EU cap without the owners’ approval, variable pay may not exceed fixed pay, so fixed pay must be at least € 500 000; with approval (200%), at least € 333 333; uncapped, as in the UK since 2023, the bank may offer, say, € 300 000 fixed and € 700 000 variable. In a year when the variable award is zero, the employee is paid € 500 000, € 333 333 or € 300 000: the cap is insurance for the employee and a fixed cost for the bank, which is why the bank’s own view of it, in Book 16, chapter 10, is about the loss-absorbing share of pay.