LONDON May 15 A cap on bank bonuses in the
European Union would be intrusive and encourage banks to bump up
basic pay instead, leading bank lobby officials said on Tuesday.
Bankers often receive a bonus of several times their basic
annual salary but the European Parliament's economic affairs
committee agreed on Monday that bonuses should not be higher
than a banker's fixed pay.
The EU Parliament's action follows public outrage at high
pay packages in the financial services industry when many banks
are still supported by taxpayer money and when there are deep
cuts in government spending and rising unemployment.
But bank lobby groups urged caution in legislating over
"We believe that attempts by legislators to set a maximum
ratio between fixed and variable remuneration intrudes on the
important role of shareholders to determine key questions on pay
and commercial strategy," said Simon Lewis, chief executive of
the Association for Financial Markets in Europe (AFME), a
A cap could make lenders more fragile by increasing fixed
costs, Lewis said.
Pressure from shareholders has already forced banks such as
Barclays and HSBC to rein in cash elements of
In the UK, the total bank bonus pot is forecast to nearly
halve this year due to the euro zone crisis and investor anger
over poor share price performance.
Mark Boleat, policy chairman at the City of London
Corporation, home to about half the capital's financial services
industry, said companies must be free to reward success.
"This measure will lead to increased salary packages and in
turn a higher fixed cost base, thereby putting Europe at an
economic disadvantage given the cyclical nature of the
industry," Boleat said.
He said it was up to shareholders to curb bonuses and they
had already taken action.
The European Union introduced certain curbs on banker
bonuses in January last year to try to reduce excessive payouts
after the financial crisis. These regulations are already some
of the toughest in the world and the EU Parliament's bonus cap
would make them even tougher.
Since then banks in Europe have tended to compensate for
restrictions on bonuses by raising bankers' basic salary
packages so that bankers' pay has stayed high.
The EU Parliament's bonus cap was included in a draft EU law
that will force banks to hold more capital to protect them
EU states also reached a deal on Tuesday in Brussels on
their own version of the draft bank capital law which does not
include the bonus cap.
Later this month the parliament and EU states will sit down
to try to agree a final text for the legislation, which should
come into force next January. But it is unclear whether EU
countries will back the bonus cap.
Germany's Finance Minister Wolfgang Schaeuble signalled to
reporters in Brussels on Tuesday that while he found the idea of
pay curbs interesting, it might be difficult to introduce them
in a law about bank capital.