European Union lawmakers are expected to meet today to put the last touches on bonus rules that will see banker bonuses capped to not exceed their base salaries. Shareholders will be able to vote to up the limit to be increased to two-times salary. These rules could end up hitting not just banks but all firms covered by FSA pay rules. Our banking reporter Tim Wallace:
Thousands of City workers could be hit by the EU’s planned bonus cap with brokers, asset managers and corporate financiers all under the cosh, as well as the bankers that politicians originally set out to attack, City A.M. can reveal.
Sources at the Treasury and the City watchdog last night confirmed that the new rules are likely to apply to all 2,700 firms covered by the Financial Services Authority’s remuneration code, an enormous increase on the initial plans to target banks alone.
Allister Heath argues that Osborne should have done more to prevent the assault on banker pay:
The new rules will lead to an increase in base pay – they won’t reduce overall compensation. This will dilute the link between pay and performance, make pay shorter-term (as bonuses are inevitably deferred, and base pay is immediate cash), make the banking system riskier by increasing its fixed costs (base pay) and reducing its variable costs (bonuses), lead to much larger sackings in downturns and increase the threat of institutions going bust, make it much harder for UK and European banks to recruit staff in New York, Singapore or Dubai, where they will be competing against players that are not bound by these rules, incentivise Asian and US firms to base more key staff outside London, make it harder to operate global teams, and encourage London based firms with extensive international operations to relocate abroad to mitigate the cap’s impact.
Officials have indicated that these rules might not come into play until mid-2014. The UK Treasury has been working to push for changes to the rules, but it is likely that only minor tweaks will be made at this stage. Any changes made would need to be approved by the European Parliament which spearheaded the move towards bonus caps as part of a wider initiative to regulate banks.