The latest EU proposals to fix bonus rates will strangle the life out of the City of London. Perhaps that is part of the intention: other EU financial centres envy London’s superiority. Pay policy is a key part of attracting and retaining the top-rate staff that City firms need to run their businesses and give customers good service. Firms differentiate their pay scales to attract the particular kinds of skills, talents and abilities they require. Brussels bureaucrats simply do not understand what they are regulating and what the effects will be. Finance is an up and down business. So bonuses are a key way to keep down core pay costs in the bad times and reward loyal workers in the good times. They are a key management tool, motivating staff to reach targets and reward commitment. City firms may not always pick the right targets, but their commercial instincts are probably better than the meddling of any bureaucrat.
Eamonn Butler is director of the Adam Smith Institute.
Any EU-wide limit on bankers’ remuneration will, in likelihood, create anguished complaints of “business prevention” , “restraint of trade” and “anti-capitalist tendencies”. But in reality, it will not cause too much physical upheaval. Most bankers either do not earn enough, or are not sufficiently mobile, to allow them to move to an appropriate location outside the EU like New York or Hong Kong. Indeed, such is the shrinkage within global financial services hiring at present, there is no guarantee that even a senior banker could move to one of these locations unless there was a strong need within their existing company, or they had specific skills in demand in those places. Of course, the size of the cap is pivotal. There’s a reason remuneration is also termed “compensation”. If the cap is sufficiently harsh, it could force some people to move abroad for more junior roles than they might have otherwise accepted.
Paul Chapman is managing director of Hornby Chapman.