views

French government demands ban on guaranteed bonuses

FRENCH banks &ndash; including those based in England and English banks based in France &ndash; have been banned from offering guaranteed bonuses.<br /><br />The only exception in the rule, announced yesterday, is for signing bonuses for new employees, and they are limited to a one year maximum.<br /><br />The government decree, which takes effect immediately, says that bonus payouts will be spread over at least three years, and will be clawed back either in part or entirely if the transactions on which the bonus was calculated turn out to be less profitable than expected. <br /><br />For large bonuses, at least 60 per cent of the total must be deferred. At least half of the total must be in stock rather than cash for all variable bonuses.<br /><br />The French government says it is pioneering a tougher system of bonus awards that reflect the spirit and letter of a deal struck at the recent G20 meeting in Pittsburgh. <br /><br />Finance Minister Christine Lagarde says she now expects other countries &ndash; notably the UK and US &ndash; to follow suit with similar rules.<br /><br />The new rules were announced jointly by Lagarde and Baudoin Prot, the head of the federation and chief executive of BNP Paribas.<br /><br />Already the decree has led to fears that French banks will lose staff and have difficulty recruiting international executives because they can not compete on pay.<br /><br />President Nicolas Sarkozy has also said there will be no bonuses this year at banks that have received state aid.<br /><br />He said bonuses rewarded risk taking and had sparked financial crisis.