What is the appropriate balance between fixed and variable remuneration?

The Remuneration Code sets no upper or lower limits on the split between fixed and variable remuneration as a percentage of total remuneration. Neither does it contain any guidance as to the level at which this should be set. Firms therefore have flexibility in this regard, but in setting the split between fixed and variable remuneration, they must ensure that:

  • the fixed and variable components of remuneration are appropriately balanced and, where appropriate, enable the firm to pay no variable remuneration (SYSC 19A.3.44R);
  • the total variable remuneration paid does not limit the firm's ability to strengthen its capital base (SYSC 19A.3.18R) and, where the capital base needs to be strengthened, the variable remuneration requirements should be sufficiently flexible to allow the firm to direct the necessary resources towards capital building (SYSC 19A.3.19G);
  • the allocation of variable remuneration takes into account all types of risk, and includes adjustments to reflect current and future risks, and the cost and quantity of the capital and liquidity required by the firm (SYSC 19A.3.22R); and
  • for individuals performing risk-management and compliance functions, the ratio of the potential variable component of their remuneration to the fixed component is significantly lower than for individuals in other areas of the business whose variable remuneration is a significant proportion of their total remuneration (SYSC 19A.3.17(3)).

Firms should also have in mind the Remuneration Principles set out in the Remuneration Code.