Sources at Barclays think they have found a way around the rule, topping up salaries with a monthly cash payment based on performance. They hope it may avoid the bonus definition, partly due to its monthly nature but also because it would not contribute to pension entitlements.
Regulators, the Treasury and banks are worried the cap would force banks to raise fixed salaries to hang onto their best staff, making them less able to cut costs to stay afloat in bad years.
They also fear the higher salaries and lower bonuses will make it harder to claw back pay from bankers.
Sources at the Treasury and Bank of England said Barclays’ plans, first reported by Sky News, show why they oppose the EU rules – they fear the payment is cash out the door that is not deferred and cannot be clawed back. The Treasury has launched a legal challenge against the rule, which could yet exempt the UK.
And the EU has not yet finalised the cap – currently it is set to cap bonuses at the same level as salaries, or double if shareholders agree.
The rule is likely to be brought in for staff who are considered to be senior risk-taking employees. In Barclays case that would cover around 400 staff.
“We need to be able to pay for the best staff and there is no way around that,” said an insider.
Barclays and the Bank of England declined to comment.
“Britain has been at the forefront of global reforms to make banking more responsible, including big reductions in upfront cash bonuses and linking rewards to long-term success,” said a Treasury spokesperson. “These EU rules will undermine this by pushing fixed pay up rather than down, making banks riskier rather than safer.”
Nonetheless an eFinancialcareers study released yesterday found 58 per cent of UK bankers expect a bonus increase this year.
The European Banking Authority is fine tuning regulations, and yesterday launched a consultation on the impact of inflation on deferred pay.