Banks to skip bonus curbs, experts warn
BANKS will easily sidestep the European Union’s crackdown on bonuses by raising base salaries and restructuring performance-related awards, consultants and senior politicians believe.
The European Parliament yesterday waved through a punitive regime capping the cash portion of bonuses at 30 per cent and forcing banks to pay the rest in shares and contingent capital, with up to 60 per cent staggered over three to five years.
Although the British Bankers’ Association warned the tough measures – not matched in the US or Asia – would lead to an exodus of talent from Europe, insiders yesterday suggested institutions would be able to work around them.
A study by Mercer, the business consultancy, found 70 per cent of banks and insurers had already hiked employees’ basic pay to compensate for a cut to cash bonuses. Vicki Elliott, a partner leading Mercer’s financial industry rewards consulting, said City firms were planning to change their remuneration policies in line with the forthcoming rules, but were “trying to balance practicality with added complexity in the process”.
A senior British politician, who asked not to be named, said banks could maintain high cash payouts simply by increasing the overall size of a bonus and linking the deferred element to impossible targets. “They’ll easily get around it,” he said.
The EU measures on remuneration, contained in a wider bill, will come into effect at the start of next year.
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The restrictions on bankers’ awards are contained in the third draft of the EU’s Capital Requirements Directive.
The European Council is scheduled to ratify the legislation next Tuesday.