Gender-neutral remuneration in banking

A bank's remuneration system is only appropriate if it's gender-neutral. Section 5 (1) no. 6 of the Remuneration Ordinance for Institutions (Institutsvergütungsverordnung – InstitutsVergV) stipulates that pay discrimination based on gender must be excluded for equal or equivalent work. But there are no specific indications as to when this is the case, either in the regulation itself or in the FAQs published by BaFin in June of this year.

A report published by the European Banking Authority (EBA) in July 2024 provides more information. In the report, the EBA analyses how credit and securities institutions apply gender-neutral remuneration policies. It analysed information collected from 254 institutions, 99 investment institutions and responsible authorities. The focus was on women's representation in the organisation and the gender neutrality of the remuneration systems.

The findings show there's work to be done

Most financial firms and the majority of investment firms met the formal expectations of the supervisory authority and explicitly had gender-neutral remuneration systems in place, which were reviewed at regular intervals. But the EBA concluded that the level of transparency in gender-neutral remuneration and diversity metrics could be improved and that more women are needed in management positions. This is not a surprise.

The report also found that 85% of all institutions – but only 62% of all investment firms – monitor the representation of women in the organisation. More monitoring is to be expected in the future, as the EBA guidelines now stipulate this. The report also found that there's still considerable room for improvement in this area. The EBA also concluded that monitoring alone is not enough to increase women's representation in management positions and reduce the gender pay gap. Rather, further measures are needed.

With regard to remuneration systems, the EBA identified various weaknesses. Some institutions had not yet established gender-neutral remuneration systems. Others didn't check annually whether the existing remuneration systems were actually applied in a gender-neutral manner. And not all institutions calculated the gender pay gap and didn't make the relevant information available to the public.

The EBA guidelines now provide for a review of the gender pay gap, so the trend can also be expected to develop positively in the short term. In our view, the list of weaknesses is valuable because, conversely, it provides a very clear indication of the supervisory authority's expectations of remuneration systems and how they're handled in banks. These are important pointers for practices that should be taken up and considered.

Finally, in the case of gender-neutral remuneration in banks, in addition to Section 5 (1) no. 6 InstitutsVergV, the provisions of the General Equal Treatment Act and the Remuneration Transparency Act must also be observed. And the EU Remuneration Transparency Directive is expected to be transposed into German law in the course of the coming year. There will then be additional regulations that will require greater overall transparency, not only with regard to remuneration, but also with regard to how it's calculated and its individual components. As a result, variable – performance-related – remuneration that's calculated and disclosed on the basis of comprehensible criteria will continue to grow in importance, while purely discretionary bonuses without predetermined and publicised criteria will be viewed critically.