European Parliament rejects bonus cap for fund managers

The European Parliament has rejected proposals to cap the bonuses of fund managers at 100 per cent of salary, voted down by a “narrow margin” according to a spokesperson.

When amendments to the UCITS V directive (UCITS being the body that coordinates the distribution and management of most funds, and had over €6tn under management in April 2012) were first proposed, the draft law only cleared parliament by 22 votes to 18, with many concerned it wasn’t appropriate for the industry, would increase costs for consumers, and further widen the gap between pay in Europe and the US. Influential MEP and chair of the Economic and Monetary Affairs Committee Sharon Bowles, for example, said that bonus restrictions were a “special case” for the banking sector.

Indeed, the original proposal was arguably even stricter than the cap on bank bonuses, covering any firm running fund approved for sale in any European Union country – which would have encompassed most of the mutual funds industry – and would not allow bonuses to rise to 200 per cent of salary as they could in the banking cap.

Leo Ringer, head of financial services at the CBI, said the decision was sensible.

A cap on bonuses works against the idea of performance related pay, undermines shareholder engagement on pay strategy and does nothing for financial stability. This decision should be seen as drawing a line under this flawed idea for good.

Alex Beidas, employee incentives lawyer at Linklaters, said that today's result may put off European politicians from trying to implement further pay restrictions beyond banking:

The flurry of lobbying in the last few days has paid off. This is good news for UCITS fund managers, but will also give other sectors comfort as there has been a concern that the Alternative Investment Fund Managers Directive would be amended to apply the cap to hedge funds and private equity firms, and that the Shareholder Rights Directive could apply a cap to listed EU companies. Today's result may lead EU law makers who are in favour of applying the cap to a wider group than banks, to think again.