Brussels wants strict limits on bank bonuses
by Daniel Mason
13 April 2012
Bankers' bonuses could be strictly limited under proposals put forward by members of a key committee in the European Parliament, with the backing of the European Commission – as the backlash against high pay in the banking sector continues in the wake of the global financial crisis.
At a meeting of parliament's economic and monetary affairs committee yesterday, Austrian MEP Othmar Karas, from the centre-right European People's Party, said bonuses ought to be capped at the level of fixed salaries. He said lawmakers were "looking at a set limit" which should be on a "one-to-one" basis with regular annual pay. Current European Union rules adopted in 2010 only limit the upfront cash element of bonuses to senior employees to one quarter of the total amount, with the rest deferred or paid in shares.
Karas – who had previously suggested limiting bonuses to two-times basic annual salaries – is responsible for steering through parliament a draft law to implement new global capital rules for banking, known as the Basel III regulations, which are due to come into effect in January 2013. Parliament is expected to vote on a first reading of the deal this summer. According to the Financial Times, the commission's financial regulation chief Michel Barnier wants MEPs to take "tougher action" on bankers' remuneration.
The proposals on curbing bankers' pay came as the European Banking Authority published a report noting that banks' alignment of risks and rewards, a "core issue raised in the wake of the financial crisis", remained "underdeveloped". The study found that the median average ratio of bonus to salary across the EU was 122 per cent at executive level and 139 per cent for other staff identified as risk takers. However, the maximum ratio of bonus to salary reported in one institution was 429 per cent for executives and 940 per cent for others, while in one EU country, the respective average ratios were 220 per cent and 313 per cent.
The remuneration policies used "do not appear to signal a breach with practices from the past and tend to be high", the EBA said. It added that the criteria used by banks to determine the sizes of bonuses were "not always clear". The report said the scope of the current guidelines was "an area of significant concern" and "considerable variations" existed in the application of the requirements.
At a meeting of parliament's economic and monetary affairs committee yesterday, Austrian MEP Othmar Karas, from the centre-right European People's Party, said bonuses ought to be capped at the level of fixed salaries. He said lawmakers were "looking at a set limit" which should be on a "one-to-one" basis with regular annual pay. Current European Union rules adopted in 2010 only limit the upfront cash element of bonuses to senior employees to one quarter of the total amount, with the rest deferred or paid in shares.
Karas – who had previously suggested limiting bonuses to two-times basic annual salaries – is responsible for steering through parliament a draft law to implement new global capital rules for banking, known as the Basel III regulations, which are due to come into effect in January 2013. Parliament is expected to vote on a first reading of the deal this summer. According to the Financial Times, the commission's financial regulation chief Michel Barnier wants MEPs to take "tougher action" on bankers' remuneration.
The proposals on curbing bankers' pay came as the European Banking Authority published a report noting that banks' alignment of risks and rewards, a "core issue raised in the wake of the financial crisis", remained "underdeveloped". The study found that the median average ratio of bonus to salary across the EU was 122 per cent at executive level and 139 per cent for other staff identified as risk takers. However, the maximum ratio of bonus to salary reported in one institution was 429 per cent for executives and 940 per cent for others, while in one EU country, the respective average ratios were 220 per cent and 313 per cent.
The remuneration policies used "do not appear to signal a breach with practices from the past and tend to be high", the EBA said. It added that the criteria used by banks to determine the sizes of bonuses were "not always clear". The report said the scope of the current guidelines was "an area of significant concern" and "considerable variations" existed in the application of the requirements.
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