Bonus payouts to asset managers will be made up of at least 50% of shares in their own funds under EU rules passed last night.
The changes outlined in UCITS V rules also stipulate that 40% of a manager's bonus must be deferred for three years, or 60% in the case of very high payouts.
After ratification - expected to take place in the next few weeks - EU members will have 18 months to introduce the legislation into domestic law.
The regulation will not affect private equity or hedge fund managers covered by parallel alternatives rules.
'Today’s deal will deliver greater protection for investors, as well as taking steps to reduce reckless risk taking in the investment fund sector,' Sven Giegold, a German politician who helped pass the directive, said.
'The revised legislation includes important provisions on remuneration that will ensure the interests of investors are better reconciled with those of fund managers.'
But he added that 'the legislation fails to tackle the problem of performance fees for management companies, which are opaque and a rip-off for investors, unfairly reducing their income from funds.'