Banker Bonuses Seen Capped at Twice Salary in EU Compromise
European Union officials reached a tentative deal with lawmakers to ban banker bonuses that are more than double annual salaries.
Negotiators from the European Parliament and Cyprus, which holds the rotating presidency of the EU, brokered the draft agreement during a meeting today, said Sharon Bowles, chairwoman of the assembly’s economic and monetary affairs committee. The deal is contingent on compromises being confirmed on some other parts of an EU law on bank capital.
The accord would cap a banker’s bonus at the same level as fixed salary, while giving room for larger awards with shareholder approval, Bowles said in an e-mail after the meeting in Strasbourg, France. A maximum limit would be set forbidding awards of more than twice fixed pay.
“We are really almost there” in getting a deal on the entire bank capital law, Philippe Lamberts, the lawmaker leading the talks for the parliament’s Green group, said in a telephone interview. “The intention is to really conclude next week.”
Banks are facing a backlash from EU lawmakers determined to cut variable pay as part of a quest to reshape lenders as utilities rather than money-making machines. Public outrage and shareholder rebellions have led some banks to limit payouts.
“This looks like yet another example of closing the door after the horse has bolted,” Richard Reid, a research fellow for finance and regulation at the University of Dundee in Scotland, said in an e-mail.
“In the current economic environment many people in the financial services sector will be happy to keep their jobs rather than worry too much about the magnitude of their bonus,” he said.
Citigroup Inc. (C) shareholders rejected an executive pay plan earlier this year. Barclays Plc (BARC) former Chief Executive Officer Robert Diamond, prior to his resignation over the Libor scandal, also was pressured by investors into forgoing part of his total compensation.
Legislators earlier this year called for a maximum 1:1 ratio between bonuses and fixed pay.
Any accord on bonuses would be part of a larger agreement on issues including voting procedures for introducing a so- called leverage ratio on lenders, Bowles said. Cyprus must also check back with other governments on whether they can accept the draft deal.
Lawmakers and officials will meet again on Dec. 18 in a bid to complete a deal on the bank capital law by the end of the year. The legislation would implement an international overhaul of bank rules agreed on in 2010 by the Basel Committee on Banking Supervision.
The “major stumbling blocks” that remain in the Basel law talks are how much flexibility should be given to national regulators to set tougher capital rules than required by the EU, and what capital surcharges should be set for banks considered too big to fail, Lamberts said.
The EU legislation to apply the international rules, known as Basel III, may take effect on Jan. 1 2014, said an official for Cyprus’s EU presidency. National governments would have until that date to incorporate the measures in their laws.
The date is one year later than a deadline set by global regulators for the Basel rules to be put on nations’ statute books. The Group of 20 nations has said that the Basel III standards should be phased in between 2013 and 2019.
U.S. regulators said in November that they wouldn’t meet the Jan. 1, 2013 deadline, as they wanted to take more time to consider responses from banks.
Michel Barnier, the EU’s financial services chief, has written to U.S. regulators seeking more information on when they intend to apply the measures.
``Good progress was made today,'' Stefaan De Rynck, a spokesman for Barnier, said in an e-mail. ``We are coming closer to wrapping up negotiations.''
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