THE CAP on City bonuses will cover far more staff on far lower pay packages than was every previously envisaged under new plans unveiled by the European Banking Authority (EBA) yesterday.
City insiders expressed shock at the plan to cap bonuses of anyone receiving awards of above €75,000 (£63,855), total payment of above €500,000 or those in the top 0.3 per cent by income in their finance firm.
The cap will then stop those staff being paid a bonus that is any bigger than their salary.
Bank of England officials have argued against a cap as it will simply push up base salaries and make banks less flexible and less able to cut costs without firing staff in any future downturn.
And they fear it will undo much of the good work taken to ensure staff are paid in shares and that bonuses can be clawed back if the situation deteriorates, steps taken to align pay with performance.
London’s banks have been arguing against the measure behind the scenes, but gained little traction so far as banker-bashing is a popular sport in Brussels.
“Everyone is very surprised the EBA has gone back on its previous plans and increased the scope of people covered so drastically,” said a banking source. “You can expect lobbying efforts to be stepped up furiously over the next few months.”
Previously code staff – those identified as risk-takers by the regulator – were likely to be covered. That would still affect thousands of City firms and tens of thousands of staff. But the new plan will multiply that figure many times over by identifying targeted staff by pay, not function.
“The EBA consultation document shifts the goalposts significantly and confirms City fears that the impact of the bonus cap will be far greater than first thought. Some financial institutions could have up to 10 times as many staff affected by the cap than previously envisaged,” said Chris Mordue from law firm Pinsent Masons.
“This new proposal means that staff whose roles are not linked to risk will still be subject to the cap if they hit the various thresholds linked to their remuneration. This makes the proposal look more about controlling levels of pay than securing financial stability and resilience.”