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Alternative Investment Funds (AIF) - Remuneration policies | Deloitte solution


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Context

Alternative Investment Funds (AIF) - Remuneration policiesA number of guidelines and recommendations have been issued in recent years by various authorities on the improvement of remuneration policies in the financial sector. The Alternative Investment Fund Managers Directive (‘AIFMD’) establishes, inter-alia, a set of rules which have largely been inspired from the provisions of Directive 2006/48/EC, the “CRD”), with which AIFMs have to comply when defining the remuneration policies of certain categories of their staff.

Key issues

The AIFMD framework introduces stringent requirements to ensure that the remuneration policies and practices of AIFMs are consistent and promote sound and effective risk management. The main objectives of the Directive, where remuneration policies are concerned, are to ensure that three key issues are covered: governance, risk alignment and transparency.

The concept of remuneration shall be understood in its broadest meaning (fixed and variable, cash and fringe benefits, incentive plans, etc.). Carried interest schemes also fall into the scope of the requirements (with the exception of co-invest schemes).

Main challenges

The AIFMD requires the AIF to establish a remuneration policy:

  • Promoting sound and effective risk management (e.g.: performance assessed on a multi-year framework, ex-ante and ex-post performance adjustments) ;
  • With a clearly-defined governance framework;
  • That is transparent, notably with regard to performance measurement and reward criteria;
  • Reflecting the AIFM nature, scale, business objectives and complexity (e.g.: appointment of a remuneration committee for AIFMs that are of significant size);
  • Preventing risk taking in excess of the risk profiles, fund rules, etc. of the AIF (e.g.: prohibition of guaranteed bonuses and golden parachutes);
  • That is applicable to senior management, material risk takers, control functions and any employee deriving a total remuneration package that takes him/her into the same remuneration bracket as senior management and risk takers;
  • Providing, under certain circumstances, for:
    • A deferral of 40% to 60% of the variable remuneration over a minimum vesting period of 3 years, and
    • The payment of at least 50% of the variable remuneration in the form of units or shares of the AIF (or any equivalent instrument depending on the legal structure of the AIF)

While the above principles are applicable to all AIFMs, the guidelines provide for the application of the so-called “proportionality principle”. The effect of this principle is that not all AIFMs have to give substance to the remuneration requirements in the same way and to the same extent; some AIFMs will need to apply more sophisticated policies or practices in fulfilling the requirements while others can meet them in a simpler or less burdensome manner.

The AIFMD further provides for disclosure of remuneration information in the annual report of the AIF. The minimum information to be disclosed is:

  • The total amount of remuneration for the financial year (split into fixed and variable remuneration)
  • The number of beneficiaries
  • Carried interest payments, and
  • The aggregate amount of remuneration broken down by senior management and staff members having a material impact on the risk profile of the AIF

Our services

Our multi-disciplinary competencies and experience in implementing new regulatory provisions on remuneration policies enable us to provide our clients with tailor-made solutions in implementing the forthcoming AIFMD guidelines as regards governance, risk management, human resources while ensuring tax efficiency.

Our services can be articulated over four dimensions:

  • Aligning the AIFM’s remuneration policy with its business objectives and risk culture
  • Reviewing and adapting , respectively, designing the AIFM’s remuneration governance and process
  • Reviewing and adapting, respectively, defining the AIFM’s remuneration policy (including HR and tax optimisation aspects)
  • Supporting the overall implementation/execution of the remuneration governance process

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Contacts

Name:
Filip Gilbert
Company:
Deloitte Luxembourg
Job Title:
Partner - Human Capital Advisory/Transformation
Phone:
fgilbert@deloitte.lu
Email
+352 451 452 743
Name:
Pierre-Jean Estagerie
Company:
Deloitte Luxembourg
Job Title:
Directeur - Tax - International Tax-GFSI
Phone:
+352 451 454 940
Email
pjestagerie@deloitte.lu
Name:
Benjamin Collette
Company:
Deloitte Luxembourg
Job Title:
Partner - EMEA AIFMD Leader
Phone:
+352 451 452 809
Email
bcollette@deloitte.lu

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