BRUSSELS could make its ultra-strict rulebook on bankers’ pay even harsher, commissioner Michel Barnier said yesterday during a visit to the City.
The ideas under consideration include forcing lenders to set a maximum ratio between their most and least highly pay staff and requiring bankers’ fixed base salaries to account for a minimum amount of their total pay package, as opposed to their bonus.
If introduced, the new rules would be the second major overhaul of bank pay regulations in less than two years, threatening to throw lenders’ cost planning into disarray.
Europe introduced the strictest pay regime in the world in January last year, forcing no more than 20-30 per cent of awards to be given in cash upfront – with the rest in shares or deferred pay. Banks also have to include “clawback” clauses in contracts with senior executives so that they can get money back if actions are later deemed to have caused certain kinds of losses.
But Barnier suggested that more intervention could be necessary to avoid a “violent reaction” from increasingly resentful European voters.
He told Reuters: “If banks are incapable of self-discipline with regards to bonuses, then we must act.”
He added: “Among the ideas that we are exploring is a ratio between fixed salary and bonus… Another idea which could be considered is a ratio between the lowest level of pay in a bank and the highest level of pay.”
Either of the measures would lead to a complete rethink of banks’ costs bases.
Investment bankers, in particular, are often given most of their reward in a variable annual bonus rather than their base salary. The system allows banks to cut some awards down to the bone when revenues are suffering – as they have this year.
In his speech at Guildhall yesterday, Barnier also told a City audience that Brussels is not trying to undermine London as a leading financial centre.
“Contrary to what I often read, there is no plot. No plot to undermine the City. No plot to boost Paris or Frankfurt at the expense of the City,” he claimed, suggesting that Britain would continue to be “at the heart of Europe”.
He added that if Europe had given in to UK demands for “safeguards” for the City at a summit last month, it would have undermined the single market by leading to counter-demands by other states.
He also warned that Europe’s move to examine structural reform of the banking sector could lead to the imposition of a rival system to the Vickers Commission ringfence.
“Do not assume that the conclusion of this thinking means reproducing the UK approach to the EU,” he said.