The Executive Remuneration Review: Luxembourg


Although the word 'executive' does not have a legal definition, the Luxembourg Labour Code makes a significant differentiation between upper-level employees (senior executives) and non-managerial employees:

  1. non-managerial employees cannot exceed a certain number of working hours per day and week. The limitation on working hours does not apply to executive employees;
  2. non-managerial employees are entitled to compensation for overtime, either by paid rest time, at a rate of one-and-a-half hours of free time per additional hour worked, or through the payment of their salary plus 40 per cent. The executive employee is not entitled to payment for overtime work; and
  3. executives do not fall within the scope of application of certain collective bargaining agreements. They are not entitled to any remuneration for work on Sundays, whereas non-executive employees are paid for hours worked on Sundays, at the request of an employer, with an increase in salary of 70 per cent.

Executives are considered to have a salary that is significantly higher than that of non-managerial employees, taking into account the time required for the performance of their duties. That is, the higher salary is in consideration for the performance of real power for effective management; or the nature of an executive's tasks includes well-defined authority, a large amount of independence in the organisation of work and a wide freedom in working hours, and in particular the absence of constraints in their schedule.


i Income tax for employees


From a Luxembourg tax law perspective, an individual is considered a tax resident of Luxembourg provided that he or she has a tax domicile in Luxembourg (i.e., a permanent place of residence in Luxembourg that is actually used and that he or she intends to maintain) or a usual abode in Luxembourg (a usual abode is deemed to exist after a continuous presence in Luxembourg of six months, which can overlap two calendar years).

Determining whether an individual taxpayer is a Luxembourg tax resident or not is of importance in assessing Luxembourg taxpayers' liability. Luxembourg tax residents are taxable on their worldwide income (i.e., they have to report their worldwide income irrespective of its source), whereas non-Luxembourg tax residents are only taxable on their Luxembourg source income.

Luxembourg tax scale is progressive and currently ranges from zero to 42 per cent, with a surcharge of 7 per cent for contributions to an employment fund and 9 per cent for taxable income exceeding €150,000 (€300,000 for a household of two persons), so the marginal income tax rate is 45.78 per cent.

Stock options

On 29 November 2017, the Luxembourg tax authorities released a new circular letter, New Circular LIR No. 104/2, which replaces the circular letter issued on 20 December 2012 and the one issued on 28 December 2015 (as well as service notes LIR/NS 104/3 of 22 May 2013 and 104/4 of 12 January 2015). The New Circular sets out amendments in relation to the tax treatment of transferable options.

The New Circular amends the tax treatment of the options for any grant to employees as from 1 January 2018, and imposes reporting obligations for employers.

Options may be offered to employees provided that:

  1. the employees are considered to be senior executives within the meaning of the provisions of the Labour Code (see Section I);
  2. the portion of remuneration paid in options may not exceed 50 per cent of the total yearly gross remuneration of an executive; and
  3. the face value of the options does not exceed 60 per cent of the value of the underlying asset.

Any option scheme implemented as from 1 January 2018 must comply with the grant notification to be sent to the Luxembourg tax authorities in a timely manner, in particular, at each granting date of the warrants.

While for options granted to employees prior to 1 January 2018 that are not listed or valued in line with a recognised financial method, the taxable basis is calculated via a lump sum valuation method (17.5 per cent of the value of the underlying shares on the grant date), this will vary where the granting of options is made on or after 1 January 2018 (30 per cent of the value of the underlying shares). The lump sum valuation method is, however, excluded when options are granted for compensation of legal indemnities in the context of an employment relationship termination, such as those set out by law, in a contract, through a settlement agreement or following a court order.

ii Social taxes for employees

Both employees and employers are subject to social security contributions. Since 1 January 2020, the annual maximum salary for contributions has been €128,519.64 (except for a dependency insurance at a rate of 1.4 per cent, which is not subject to the Luxembourg social security ceiling).

iii Tax deductibility for employers

Salary costs as well as social security contributions paid by an employer are expenses fully deductible from a corporate income tax perspective.

Remuneration paid by a Luxembourg company to its board members in the form of directors' fees is not tax-deductible from the corporate income tax basis.

iv Other special rules

Luxembourg tax and social security treatment of termination payments

According to the Luxembourg Income Tax Law, employment income includes all income derived from the performance of a salaried activity (i.e., all remuneration, benefits and annuities granted by an employer prior to or after the termination of the employment relationship). However, the Income Tax Law foresees an exemption for the following termination payments:

  1. the statutory severance indemnity as provided for in the Labour Code or in a collective bargaining agreement;
  2. the indemnity established by a labour court for unfair dismissal;
  3. the indemnity agreed upon in a settlement agreement for wrongful termination of an employment contract; and
  4. the voluntary layoff indemnity paid in the event of termination of an employment contract by a worker or by mutual agreement of the parties.

The termination payment as defined in point (a) above is fully exempt from tax. The termination payments specified in points (b), (c) and (d) above are exempt from tax up to €25,703.88 (at index 834.76), that is, 12 times the monthly minimum wage applicable as of 1 January of the tax year concerned. In the event that an indemnity is divided over a number of tax years, the monthly minimum wage to be taken into consideration is the one related to the tax year in which the indemnity is first paid.

The above tax exemption is not granted if the recipient is entitled to a retirement or an early retirement (regardless of the nature of the termination payment). If the recipient is 60 years of age or older at the time of termination, does not qualify for retirement or early retirement and earns an annual taxable income exceeding €150,000, the termination allowances are exempt up to €8,567.96 (at index 834.76), that is, four times the monthly minimum wage in force on the date of payment.

In principle, the termination payments described in points (a), (b) and (c) above are not subject to Luxembourg social security contributions. In certain cases, the termination payment specified in point (d) may be subject to Luxembourg social security contributions.


In accordance with a circular letter of the Luxembourg tax authorities applicable as from 1 January 2014, certain expenses and allowances paid by a Luxembourg employer in connection with an inpatriate worker shall not fall within the scope of employment income or benefits in kind for the inpatriate worker.

The regime applies to inpatriates coming to Luxembourg, such as employees who are part of an international group and who are assigned to a Luxembourg office belonging to the group or employees directly hired abroad.

Hence, reasonable assignment-linked benefits and expenses are tax-exempt provided certain conditions are met.

General conditions at the level of inpatriate workers are that:

  1. an inpatriate worker must be resident in Luxembourg;
  2. he or she should not have been resident or subject to income tax in Luxembourg for the five years preceding the application of the inpatriate regime, nor have lived at a distance of less than 150km from the Luxembourg border;
  3. in cases of an intra-group assignment, the inpatriate must:
    • have five years' seniority within the international group or sector concerned;
    • be in an employment relationship between the sending company and the employee;
    • have the right to return to his or her home company on the expiry of the secondment period; and
    • have a contractual arrangement between the sending company and the host company; and
  4. in the case of recruitment, the inpatriate should be able to evidence an in-depth specialisation in a sector or profession for which it is difficult to recruit in Luxembourg.

Conditions concerning the Luxembourg employer are that the Luxembourg employer must employ (or undertake to have in the mid-term) at least 20 full-time employees; and the number of inpatriate workers should not exceed 30 per cent of the total number of full-time employees.

Conditions relating to employment are that the employment activity should not consist of temporary work; and the annual gross remuneration must be at least €50,000.

The New Circular provides for a list of exempt assignment-linked benefits such as one-off expenses linked to the transfer of residences, home staging expenses, travel expenses on special occasions (e.g., births, weddings), certain housing expenses up to the lower of €50,000 (€80,000 for couples) and 30 per cent of an inpatriate worker's total annual fixed remuneration, certain school fees and cost of living allowances.

Expenses and allowances paid by a Luxembourg employer remain deductible from the Luxembourg company's taxable basis for corporate income and municipal business tax purposes.

The inpatriate regime applies for a maximum period of six years and ceases to apply when the relevant conditions are no longer met. By 31 January of each year at the latest, Luxembourg employers must provide the Luxembourg tax authorities with a list of the inpatriate workers they employ. Failure to respect the New Circular's provisions will lead to revocation of the inpatriate regime.

Employment law

i Restrictive covenants

As a general principle, a balance has to be struck between the freedom of occupation, which is a fundamental right enshrined in the Constitution, and the legitimate interest of employers to protect their business. Luxembourg courts recognise non-solicitation and non-compete covenants provided that they comply with the applicable law, and they are reasonable in time, scope and geographical coverage.


Non-compete clauses are regulated by the Labour Code. In accordance with Article L125-8 of the Code, to be valid, a non-compete clause must fulfil the following conditions:

  1. it must be in writing;
  2. it must apply only to employees who go on to run their own company after leaving their employers;
  3. employees signing employment contracts or any modification containing a non-compete clause must be at least 18 years old;
  4. employees must earn an annual salary of at least €56,906.18 (value based on index 834.76.) on the day that they leave a company;
  5. it must refer to a specific professional sector and professional activities that are similar to those performed for the former employer;
  6. it must be limited to 12 months, beginning on the day that an employee's employment contract ends; and
  7. it must be limited geographically to Luxembourg.

A non-compete covenant is not enforceable against an employee in cases where the employer has terminated the employment relationship for gross misconduct while not authorised to do so, or if, upon termination, the employee has not been granted the legal notice period.


Non-solicitation covenants are not expressly provided for in the Labour Code but are rather based on civil law principles. They are generally enforceable provided that they are reasonable (i.e., not broad or ambiguous). Usually, if a court decides that a restrictive covenant is unreasonable or uncertain, it has two alternatives: striking down the whole restrictive covenant (i.e., declare the voidance of the clause); or sever the offending parts of the restriction, if the language permits, and save the rest (as for illegal clauses, to most appropriately cure the illegality while preserving as much as possible the parties' intentions).

ii Release of claims

An employee's release of claims can be foreseen either:

  1. in a separation agreement between an employer and a departing employee specifying the terms of the employee's separation from employment, including a release of claims against the employer in exchange for a benefit; or
  2. in a settlement agreement between an employer and an employee who has asserted certain claims against the employer based upon his or her employment, through which it is intended to settle and resolve all disputes and claims, including a release of claims against the employer in consideration for the payment of a settlement amount.

iii Unfair termination of employment

Unfair termination of employment refers to the process of dismissing an employee in the absence of a real and serious cause.

In determining whether an employee has been unfairly terminated, the labour courts consider the cause of termination and whether the employer had a sufficient and justifiable reason to terminate the employment contract. If an employee is found to have been terminated unfairly, he or she will be awarded compensation for financial or moral damage suffered following the termination.

Unfairly dismissed employees are under a duty to mitigate their loss, for example by actively searching for a new job. If they fail to comply with this duty, the courts will consider that their losses are not directly linked to the termination, and will reduce the damages accordingly.

Compensation for damage is not confined by the Labour Code. Judges in the labour courts have broad discretion to decide on the amount of said compensation.

iv Severance payments

Only employees dismissed with notice are entitled to a severance payment calculated according to their length of service. Severance payments are calculated as follows:

  1. from five up to 10 years of employment: one month's salary;
  2. from 10 up to 15 years of employment: two months' salary;
  3. from 15 up to 20 years of employment: three months' salary;
  4. from 20 up to 25 years of employment: six months' salary;
  5. from 25 up to 30 years of employment: nine months' salary; and
  6. more than 30 years of employment: 12 months' salary.

v Change of control

There are no specific rules applying to termination of employment in connection with a change in control. Termination of employment must be for real and serious cause and cannot occur just because a different owner takes over the management control of a company.

vi Transfer of employment in connection with a corporate transaction

There are no specific rules on severance payments that apply to a transfer of employment in connection with a corporate transaction.

Under Article L127-1 et seq. of the Labour Code, there is an automatic transfer of the employment contract in the case of a modification in an employer's legal situation (e.g., sale or merger) and provided the criteria set by case law are met, meaning that it is a transfer of a stand-alone business that maintains its identity within the transferee. Such an automatic transfer cannot be itself a justification for a dismissal. However, subsequent dismissals for other reasons (e.g., on economic, technical or organisational grounds) could potentially be implemented depending on the factual circumstances. In these cases, the ordinary statutory provisions on severance pay would apply, unless a collective bargaining agreement or specific contractual clause provided more favourable terms.

In share deals, there are no specific employment law provisions setting any requirements.

In cases where a transfer of employment is made on a voluntary basis, the consent of the employee concerned is required.

Securities law

Pursuant to the Prospectus Regulation,2 no offer of securities shall be made to the public within the territory of Luxembourg without the prior publication of a prospectus duly approved by the Financial Sector Supervisory Commission (CSSF) or, as the case may be, approved by the competent authority in another EU Member State and duly passported into Luxembourg. The offer of shares or securities to directors and employees in Luxembourg customarily falls within the scope of the Prospectus Regulation. That said, the Prospectus Regulation foresees a number of exemptions to the obligation to draw up a prospectus.

This will be the case for offers of securities addressed to fewer than 150 natural or legal persons in Luxembourg, other than qualified investors (as defined in the Prospectus Regulation, which cross-refers to the definition of professional clients under MiFID II3); or alternatively, in the event this exemption cannot apply, to offers of securities offered, allotted or to be allotted to existing or former directors or employees by their employer or by an affiliated undertaking, provided that a document is made available to the interested parties containing information on the number and nature of the securities offered and the reasons for and details of the offer.

Depending on the circumstances, directors or employees who are offered securities may in turn be subject to certain disclosure obligations. This will notably be the case where the securities are admitted to trading on a stock exchange within the European Union. Indeed, pursuant to the Market Abuse Regulation,4 persons discharging managerial responsibilities (PDMRs) within an issuer whose securities are admitted to trading on a regulated or multilateral trading facility (both in the sense of MiFID II), and persons closely associated to PDMRs, are required to notify the issuer and the CSSF of every transaction conducted on their account relating to the securities issued by the issuer. This notification must be made as soon as possible and no later than three trading days following the transaction. PDMRs typically include members of the administrative, management or supervisory body of the issuer, but also senior executives who have regular access to inside information (in the sense of the Market Abuse Regulation: that is, broadly, price-sensitive information) and the power to take managerial decisions affecting future developments and business prospects of the issuer. Persons closely associated to PDMRs will also be subject to the same disclosure requirements and include the following:

  1. spouses or partners considered to be equivalent to a spouse in accordance with national law;
  2. dependent children;
  3. relatives who have shared the same household for a certain period of time; and
  4. legal persons, trusts or partnerships the managerial responsibilities of which are discharged by such PDMR or a person closely associated to him or her.

The Market Abuse Regulation sets out a de minimis threshold of €5,000 per calendar year so that no notifications are required in cases where the cumulative value of transactions remains below that threshold per calendar year.

It is worth mentioning that the Market Abuse Regulation also prohibits any person from making use of inside information: that is, non-public, price-sensitive information relating to an issuer, or its securities admitted to trading that he or she may hold, to acquire or dispose of, for his or her own account or for the account of a third party, directly or indirectly, financial instruments to which that information relates, as well as any attempt thereto (commonly referred to as insider dealing). In addition, it is prohibited for any person to disclose inside information to anyone else (except where the disclosure is made in the normal exercise of such person's employment, profession or duties) or, while in possession of inside information, to recommend or induce anyone to acquire or dispose of financial instruments to which the information relates.

Directors or employees holding securities also need to consider the disclosure obligations deriving from the law of 11 January 2008 on transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market, as amended (Transparency Law). Under the Transparency Law, any person acquiring or disposing of a shareholding in an issuer whose shares are admitted to trading on a regulated market must notify the issuer and the CSSF of the proportion of voting rights held by that person where, following an acquisition or disposal, said proportion reaches, exceeds or falls below one of the thresholds of 5, 10, 15, 20, 25, 33.3, 50 or 66.6 per cent of the total voting rights outstanding within the issuer. The Transparency Law further extends this disclosure requirement to persons who are not directly shareholders but can, among other things:

  1. exercise the voting rights attached to the relevant shares; or
  2. hold financial instruments that on maturity give the right to acquire shares of the issuer or that, in the absence of any such physical settlement, have a similar economic effect.

The notifications must be made as soon as possible, and no later than six trading days following the transaction by the relevant shareholder or four trading days following information of an event changing the breakdown of voting rights by the issuer.

While there are generally no legal requirements for executive employees to hold stock of their employer, or any limitations in respect of the number of securities that employees may hold, the articles of association of the issuer may, however, contain certain limitations or specific disclosure requirements.

Several other rules and guidelines can apply to Luxembourg companies offering shares to their employees. Notably, companies that are subject to the Ten Principles of Corporate Governance issued by the Luxembourg Stock Exchange (those will, as a rule, be the companies whose shares are admitted to trading on the regulated market operated by the Luxembourg Stock Exchange) need to comply with certain principles on directors' remuneration and comply or explain recommendations with respect to the offering of shares to directors (e.g., guidelines on share allocations, share options and other rights to acquire shares, vesting rules).

Furthermore, the law of 24 May 2011 on shareholders' rights in listed companies (the Shareholders' Rights Law), as amended by the law of 1 August 2019 (implementing directive (EU) 2017/828), establishes a right for shareholders to vote on the remuneration of the management (say on pay), including where the company awards share-based remuneration (see Section VII).

Additionally, entities (credit institutions and investment firms) subject to CRD IV5 as transposed in the law of 5 April 1993 on the financial sector, as amended, will further need to comply with the limitations on remuneration set out therein in accordance with their regulated status. CRD IV has been recently amended by Directive (EU) 2019/878 of the European Parliament and of the Council of 20 May 2019, as regards exempted entities, financial holding companies, mixed financial holding companies, remuneration, supervisory measures, and powers and capital conservation measures (CRD V). More generally, regulated entities of the financial sector will also need to bear in mind the rules and guidelines issued by the CSSF with respect to remuneration policies for regulated entities. Notably, the CSSF confirmed the adoption of the guidelines on sound remuneration policies issued by the European Banking Authority6 in circular CSSF 17/658 applicable to credit institutions and investment firms. On 21 November 2016, the European Banking Authority issued a review of the application of the principle of proportionality to the remuneration provisions in CRD IV.


CSSF Circular 10/437 implementing Commission Recommendation 2009/384/EC of 30 April 2009 establishes guidelines regarding remuneration policies in the financial sector (Circular). The Circular applies to financial undertakings: all entities, legal and natural persons, subject to the CSSF's prudential supervision. These financial undertakings include, but are not limited to, credit institutions, investment firms, managers of pension funds and collective investment schemes. Branches set up abroad as well as branches of similar entities set up in Luxembourg whose registered offices or central administration are located outside the European Economic Area are included in the scope of the Circular.

The Circular requires financial undertakings to establish, implement and maintain a remuneration policy that is consistent with promoting sound and effective risk management and that does not induce excessive risk-taking. The structure of the remuneration policy shall follow a set of rules established therein. Once designed, the remuneration policy has to be submitted to the CSSF as part of the supervisory review process as an element of internal governance, and disclosed to the public either in the form of an independent remuneration policy statement or a periodic disclosure in the annual financial statement, or in any other form.

Disclosure requirements under the Circular apply on an individual and on a consolidated basis. They apply to the remuneration of members of administrative and management bodies, and categories of staff whose professional activities have a material impact on the risk profile of financial undertakings. Remuneration granted only on a fixed basis is exempted from disclosure requirements.

The following information shall be disclosed to the public:

  1. information concerning the decision-making process used for determining a remuneration policy, including, if applicable, information about the composition and the mandate of a remuneration committee, the name of the external consultant whose services have been used for the determination of the remuneration policy and the role of the relevant stakeholders;
  2. information on the link between pay and performance;
  3. information on the criteria used for performance measurement and risk adjustment;
  4. information on the performance criteria on which the entitlement to shares, options or variable components of remuneration is based; and
  5. the main parameters and rationale for any annual bonus scheme and any other non-cash benefits.

Regarding the level of the disclosed information, the nature, size and specific scope of activities of the financial undertaking concerned may be taken into account.

Moreover, credit institutions and investment firms that maintain a website shall explain thereon how they comply with the remuneration policy requirements.

Corporate governance

Luxembourg companies whose shares are admitted to trading outside Luxembourg may voluntarily decide to comply with the Ten Principles of Corporate Governance of the Luxembourg Stock Exchange, which set out certain corporate governance guidelines and recommendations with respect to the implementation of a fair remuneration policy for directors and members of the executive management.

From a corporate perspective, compensation paid to a company's administrative, management or supervisory bodies (the directors) is determined by the board of directors and approved at a general meeting of shareholders.

Indeed, the recently amended Shareholders' Rights Law establishes a right for shareholders to vote on the remuneration of the management (say on pay) in order to align the interests of the company with those of its directors.

The Shareholders' Rights Law applies to companies with registered office in Luxembourg, whose shares are admitted to trading on an EU regulated market (within the meaning of the law of 30 May 2018 on markets in financial instruments, as amended) or a third-country regulated market (in the event of an express opt-in to these rules in the company's articles of association).

Under the Shareholders' Rights Law, shareholders are able to express their views twice.

First, they will vote ex ante on a remuneration policy laying down the framework within which remuneration can be awarded to directors. The Shareholders' Rights Law has opted for an advisory vote, unless the articles of association provide for a binding vote. The remuneration policy must be submitted to the shareholders' vote at each material change and at least every four years.

The remuneration policy must contribute to the company's business strategy and long-term interests and sustainability and explain how it does so. It must describe the different components of fixed and variable remuneration, including all bonuses and other benefits in whatever form, which can be awarded to directors and indicate their relative proportion.

The remuneration policy must also explain how the pay and employment conditions of employees of the company were taken into account when establishing the remuneration policy.

Where a company awards variable remuneration, the remuneration policy must set clear, comprehensive and varied criteria for the award of the variable remuneration and indicate in particular, the financial and non-financial performance criteria.

Where the company awards share-based remuneration, the policy must specify vesting periods and where applicable, the retention of shares after vesting.

The remuneration policy must indicate the duration of the contracts or arrangements with directors and the applicable notice periods.

Companies can temporarily derogate from the remuneration policy in exceptional circumstances (i.e., when such derogation is necessary to serve the long-term interests and sustainability of the company as a whole or to assure its viability).

Shareholders must also vote ex post (annually) on the remuneration report, which provides a comprehensive overview of the remuneration awarded to each director during the most recent financial year. The vote is advisory. Small and medium-sized enterprises, as defined in the amended law of 19 December 2002 on the register of commerce and companies and the accounting and annual accounts of undertakings, are entitled to replace this vote by a discussion at the annual general meeting.

The remuneration report must indicate in particular, (i) the total remuneration split out by component and the relative proportion of fixed and variable remuneration; (ii) the annual change of remuneration; (iii) remuneration from any undertaking belonging to the same group; (iv) the number of shares and share options granted or offered as well as the main conditions for the exercise of these rights, including the exercise price and date; and (v) information on the use of the possibility to reclaim variable remuneration.

Both the remuneration policy and the remuneration report must be publicly disclosed by the company. The remuneration policy (together with the date and results of the shareholders' vote) must remain publicly available on the company's website at least as long as it is applicable. The remuneration report must remain publicly available on the company's website for at least 10 years.

Additional requirements may apply with respect to incentive plans, such as stock option plans, warrants schemes, long-term incentive plans and restricted stock units agreements, which should, in principle, be approved by a company's board of directors.

Luxembourg companies of a certain size and belonging to an international group usually have a remuneration committee that establishes a remuneration policy outlining guidelines for the determination of the remuneration of management members and key personnel.

Specialised regulatory regimes

The Law of 23 July 2015 (the 2015 Law) implementing, inter alia, CRD IV, has brought about changes that mainly relate to access to financial sector activities, corporate governance and remuneration, prudential rules, capital buffers and administrative penalties. These changes are now reflected in the amended Law of 5 April 1993 on the financial sector (the New FSL).

CRD IV and CRR7 recast and replace the Capital Requirements Directives (i.e., the Banking Consolidation Directive8 and Capital Adequacy Directive).9

CRD IV has been amended by CRD V and CRR has been amended by CRR II.10

The provisions of the 2015 Law apply in particular to CRR institutions, which are defined in the New FSL as 'institutions within the meaning of Article 4(1)(3) of the CRR' (i.e., credit institutions or investment firms within the meaning of the CRR).

The main provisions regarding remuneration introduced by the 2015 Law in the New FSL are briefly outlined below.

i Identified staff

The new rules on remuneration apply to staff members who have a material impact on an institution's risk profile.

The definition of identified staff or material risk takers is now contained in CRD V.

Categories of staff whose professional activities have a material impact on the institution's risk profile shall, at least, include:

  1. all members of the management body and senior management;
  2. staff members with managerial responsibility over the institution's control functions or material business units; or
  3. staff members entitled to significant remuneration in the preceding financial year, provided that the following conditions are met:
    • the staff member's remuneration is equal to or greater than €500 000 and equal to or greater than the average remuneration awarded to the members of the institution's management body and senior management referred to in point (a); and
    • the staff member performs the professional activity within a material business unit and the activity is of a kind that has a significant impact on the relevant business unit's risk profile.

ii Fixed or variable remuneration

The 2015 Law makes a distinction between fixed and variable remuneration:

  1. the basic fixed remuneration (salary) must reflect the relevant professional experience and organisational responsibility as set out in an employee's job description as part of the terms and conditions of employment; and
  2. variable remuneration (bonus) must reflect a sustainable and risk-adjusted performance as well as performance in excess of that required to fulfil the employee's job description as part of the terms of employment.

iii Bonus cap

For variable remuneration, the following two principles now apply:

  1. the variable component may not exceed 100 per cent of the fixed component of each individual's aggregate remuneration; and
  2. the shareholders of the institution (excluding staff concerned by the ratio) may approve a higher maximum level of the ratio between the fixed and variable components of remuneration provided that the overall level of the variable component does not exceed 200 per cent of the fixed component of the aggregate remuneration for each individual.

iv Malus and clawback

Up to 100 per cent of the total variable remuneration must be subject to malus or clawback arrangements. Institutions must set specific criteria for the application of malus and clawback that may apply in particular situations.

v Deferral

It is foreseen that at least 50 per cent of the variable remuneration must consist of a balance between shares (or equivalent equity interests) and instruments that reflect the credit quality of an institution as a going concern. Equally, the New FSL now expressly states that at least 40 per cent of the variable remuneration must be deferred over a period of not less than three to five years. When the amount of the variable remuneration component is particularly high, at least 60 per cent must be deferred.

CRD V adjusts the deferral period providing for a minimum deferral of four (instead of three) years. In the case of senior management, the minimum deferral period is five years.


CRD V clarifies that the rules in relation to deferral, retention and payment in instruments will apply to all institutions and their identified staff, except in case of:

  1. an institution that is not a large institution as defined in point (146) of Article 4(1) of CRR and the value of the assets of which is on average and on an individual basis in accordance with CRD IV and CRR equal to or less than €5 billion over the four-year period immediately preceding the current financial year; or
  2. a staff member whose annual variable remuneration does not exceed €50,000 and does not represent more than one third of the staff member's total annual remuneration.

Remuneration disclosures

CRR II provides some clarifications as to the remuneration disclosures. Entities (i.e., credit institutions and large investment firms) must disclose some information regarding their remuneration policy and practices for those categories of staff whose professional activities have a material impact on the risk profile of the institutions (i.e., information concerning the decision-making process used for determining the remuneration policy; information about the link between pay of the staff and their performance; the ratios between fixed and variable remuneration; information on whether the institution benefits from a derogation laid down in Article 94(3) of CRR).

Developments and conclusions

The New Circular provisions amending the tax treatment of options as well as the Luxembourg inpatriate tax regime create a favourable tax environment for attracting highly skilled workers and are conjointly and commonly used by Luxembourg employers to optimise the remuneration paid to their executives. In addition, the use of these tax regimes does not lead to any additional tax or social security costs at the level of Luxembourg employers, considering that salary costs as well as social security contributions paid by employers are expenses fully deductible from a corporate income tax perspective.



1 Véronique Hoffeld and Cédric Raffoul are partners, Farah Jeraj is a counsel and Kheira Mebrek is a senior associate at Loyens & Loeff Luxembourg.

2 Regulation (EU) 2017/1129 of 14 June 2017 on prospectuses.

3 Directive 2014/65/EU of 15 May 2014 on markets in financial instruments.

4 Regulation (EU) No. 596/2014 on market abuse.

5 Directive 2013/36/EU, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC.

6 EBA/GL/2015/22.

7 Regulation (EU) 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No. 648/2012.

8 Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions.

9 Directive 2006/49/EC of the European Parliament and of the Council of 14 June 2006 on the capital adequacy of investment firms and credit institutions.

10 CRR II means Regulation (EU) 2019/876 of the of 20 May 2019 amending Regulation (EU) No. 575/2013 as regards the leverage ratio, the net stable funding ratio, requirements for own funds and eligible liabilities, counterparty credit risk, market risk, exposures to central counterparties, exposures to collective investment undertakings, large exposures, reporting and disclosure requirements, and Regulation (EU) No. 648/2012.

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