The European Union’s chief financial services officer pledged last night to stop banks from sidestepping the bloc’s cap on bonuses.
Michel Barnier said that the EU’s probe into allowances that some banks have started to pay staff must wrap up by the end of September.
Already banks including Barclays, HSBC and RBS have implemented systems to pay fixed allowances several times a year, based on executives’ roles. They are renegotiated every year, but not directly based on performance as bonuses are.
Barnier’s statement came a day before the UK clashes with Brussels in an attempt to stop the bank bonus cap coming into force.
The Treasury and regulators fear the cap will not cut bankers’ incomes – instead they say it will push up salaries and undermine the new system of deferment and clawback which was designed to make bankers work towards long-term stability.
Pushing up salaries also makes it harder to slash pay when a downturn strikes, pushing up banks’ costs and making them less stable.
Brussels’ cap limits bonuses to the same level as a banker’s salary, or to twice the salary if shareholders give their consent. It comes into force in this year’s bonus round.
The Bank of England has lobbied against the new rules, fearing they – and the fixed allowances which let bankers get around the rules – undermine financial stability.
The UK will tell the Court of Justice of the European Union that the cap breaks EU rules which say regulators cannot set pay for any workers.
It will also argue that the rules: damagingly impact contracts made before the regulations were introduced; break international law by hitting workers outside the EU, but working for European firms; breach data protection rules by sharing private pay information; and wrongly give new powers to the European Banking Authority.
Any judgement from the court will take four to eight months.