Bankers face a cap on their bonuses after EU officials agreed a provisional limit., reports Harris & Co Chartered Accountants Northampton.
The move was agreed in Brussels despite pressure from the UK Government to protect the financial services sector and the 144,000 banking staff employed in the City of London.
The plan would see all bankers working in the EU face an automatic cap on payouts at the same level of their salary, or a maximum of two-times their pay – but only if a majority of shareholders back such a move.
Prime Minister David Cameron, speaking in Latvia, said:
‘We do have in the UK – and not every other European country has this – we have major international banks that are based in the UK, but have branches and activities all over the world.’
‘We need to make sure that regulation put in place in Brussels is flexible enough to allow those banks to continue competing and succeeding while being based in the UK.’
The move – agreed following an eight-hour session between the European Commission, EU lawmakers and representatives of the 27 European governments in Brussels - looks likely to go some way to satisfy widespread public disquiet over the lucrative rewards paid to bankers.
Othmar Karas, European Parliament"s chief negotiator, said:
‘For the first time in the history of EU financial market regulation, we will cap bankers" bonuses.’
‘The essence is that from 2014, European banks will have to set aside more money to be more stable and concentrate on their core business, namely financing the real economy, that of small and medium-sized enterprises and jobs.’
Final approval by parliament and government leaders is expected to sail through.
Yet the Federation of European Employers (FedEE) has claimed the EU would exceed its powers by backing the cap, but Linklaters says the Commission have been very careful to word this so it is not an absolute cap on pay which could exceed the EU’s powers, but a ratio between the fixed and variable components of pay.
Alex Beidas, Linklaters employee incentives lawyer, said:
‘This will be a significant concern for banks who will be put at a major disadvantage in the global market. There is a real danger that this will result in bankers moving to the US and Asia. It is also likely to lead to an increase in salaries which is undesirable as banks are trying to minimise their fixed costs.’
The vote on the legislation in the European Parliament is now scheduled for 21 May, with any new compromise not to be put to a vote until then. It will then have to be approved and adopted by the EU Council before being implemented by individual member states.
Matthew Fell, CBI director for competitive markets, said:
‘These proposals fly in the face of efforts to align pay and performance. ‘They would significantly constrain shareholders’ ability to hold companies to account by voting on pay policy and implementation, and to select board members.’
‘We’re concerned that this proposal sets a dangerous precedent and could spill over into other sectors, damaging jobs and growth.’