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| European Union Moves Toward Bonus Cap for Bankers | European Union Moves Toward Bonus Cap for Bankers |
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| BRUSSELS — The European Union moved a step closer Thursday to imposing strict curbs on bonus pay for bankers, which has been blamed by many politicians for inciting the risk-taking behavior that set off the financial crisis. | BRUSSELS — The European Union moved a step closer Thursday to imposing strict curbs on bonus pay for bankers, which has been blamed by many politicians for inciting the risk-taking behavior that set off the financial crisis. |
| A provisional agreement struck by the European Parliament, the European Commission and national representatives could mean that the coveted bonuses many bankers receive will be capped at the level of their annual salaries, starting next year. The proposal would allow bonuses of as much as double the salary if a sufficient number of a bank’s shareholders agreed. | A provisional agreement struck by the European Parliament, the European Commission and national representatives could mean that the coveted bonuses many bankers receive will be capped at the level of their annual salaries, starting next year. The proposal would allow bonuses of as much as double the salary if a sufficient number of a bank’s shareholders agreed. |
| The agreement, as it stands, is a blow to Britain, which partly relies on generous remuneration packages to ensure that the City of London remains the biggest financial center in Europe and the overseas home of banks from around the globe. | The agreement, as it stands, is a blow to Britain, which partly relies on generous remuneration packages to ensure that the City of London remains the biggest financial center in Europe and the overseas home of banks from around the globe. |
| ‘‘We need to make sure that regulation put in place in Brussels is flexible enough to allow those banks to continue competing and succeeding while being located in the U.K.,’’ David Cameron, the British prime minister, said in Riga, the Latvian capital. | ‘‘We need to make sure that regulation put in place in Brussels is flexible enough to allow those banks to continue competing and succeeding while being located in the U.K.,’’ David Cameron, the British prime minister, said in Riga, the Latvian capital. |
| The bonus restrictions were added to legislation enacting the Basel III bank regulations. The Basel rules, which were agreed to by global central bankers and the financial authorities, are meant to ensure that lenders have the resources to weather crises. | The bonus restrictions were added to legislation enacting the Basel III bank regulations. The Basel rules, which were agreed to by global central bankers and the financial authorities, are meant to ensure that lenders have the resources to weather crises. |
| ‘‘We’ve achieved the most comprehensive banking reform in the European Union,’’ Othmar Karas, an Austrian member of the European Parliament and chief negotiator of the deal, said at a news conference. | ‘‘We’ve achieved the most comprehensive banking reform in the European Union,’’ Othmar Karas, an Austrian member of the European Parliament and chief negotiator of the deal, said at a news conference. |
| The parliamentary vote reflects a global backlash against the outsized pay in the financial sector after the financial crisis and economic dislocation that followed. Voters in Switzerland, which is not an E.U. member, will go to the polls this weekend for a referendum question that will decide whether shareholders gain more control over executive compensation. | The parliamentary vote reflects a global backlash against the outsized pay in the financial sector after the financial crisis and economic dislocation that followed. Voters in Switzerland, which is not an E.U. member, will go to the polls this weekend for a referendum question that will decide whether shareholders gain more control over executive compensation. |
| ‘‘This legislation was resisted tooth and nail by the industry,’’ said Philippe Lamberts, a member of the Parliament’s Green bloc from Belgium. | ‘‘This legislation was resisted tooth and nail by the industry,’’ said Philippe Lamberts, a member of the Parliament’s Green bloc from Belgium. |
| While the battle has often been portrayed as matching Britain against the Continent, the reality has been that ‘‘many in Paris, as well as Frankfurt and Berlin, were not too happy’’ about what was happening in Parliament, he said, but did not mind allowing London to take the leading role in opposing it. | While the battle has often been portrayed as matching Britain against the Continent, the reality has been that ‘‘many in Paris, as well as Frankfurt and Berlin, were not too happy’’ about what was happening in Parliament, he said, but did not mind allowing London to take the leading role in opposing it. |
| A majority of E.U. states still must give their final approval for the legislation to take effect, and there are expected to be more discussions on the rules at the European Parliament and among governments. | A majority of E.U. states still must give their final approval for the legislation to take effect, and there are expected to be more discussions on the rules at the European Parliament and among governments. |
| If the proposal goes through, the law on bonuses would take effect on Jan. 1, 2014. | If the proposal goes through, the law on bonuses would take effect on Jan. 1, 2014. |
| Mr. Karas acknowledged that more work lay ahead, with a need for technical working groups to ‘‘put it into a text’’ that ‘‘holds water legally.’’ Legislators said they would work to ensure that bankers did not get around the rules with so-called ‘‘golden handshakes’’ and ‘‘contract buyouts.’’ | Mr. Karas acknowledged that more work lay ahead, with a need for technical working groups to ‘‘put it into a text’’ that ‘‘holds water legally.’’ Legislators said they would work to ensure that bankers did not get around the rules with so-called ‘‘golden handshakes’’ and ‘‘contract buyouts.’’ |
| The goal of the proposed bonus cap is to balance many different interests, including ‘‘the desire to limit bankers’ pay while maintaining a competitive European banking sector,’’ Michael Noonan, the finance minister of Ireland, which holds the rotating E.U. presidency, said in a statement after the talks ended. Mr. Noonan said he would present the plan at a meeting of finance ministers next week. | The goal of the proposed bonus cap is to balance many different interests, including ‘‘the desire to limit bankers’ pay while maintaining a competitive European banking sector,’’ Michael Noonan, the finance minister of Ireland, which holds the rotating E.U. presidency, said in a statement after the talks ended. Mr. Noonan said he would present the plan at a meeting of finance ministers next week. |
| Under the proposal, the bonus rules would also apply to bankers employed by E.U. banks but working outside the bloc, in New York, for example. The E.U. authorities are drafting separate rules that could restrict remuneration at private equity firms and hedge funds. | Under the proposal, the bonus rules would also apply to bankers employed by E.U. banks but working outside the bloc, in New York, for example. The E.U. authorities are drafting separate rules that could restrict remuneration at private equity firms and hedge funds. |
| An E.U. diplomat stressed that a significant amount of technical work needed to be done before the rules were made final by governments. The diplomat, who spoke on the customary condition of anonymity, said the rules would contain a review clause requiring the authorities to assess whether the rules were having damaging effects on the banking sector. | An E.U. diplomat stressed that a significant amount of technical work needed to be done before the rules were made final by governments. The diplomat, who spoke on the customary condition of anonymity, said the rules would contain a review clause requiring the authorities to assess whether the rules were having damaging effects on the banking sector. |
| The diplomat said no date had been fixed for the review, but said that could be done during discussions over coming weeks. | |
| To address concerns that putting a cap on bonuses could mean that bankers would migrate elsewhere, lawmakers emphasized that the proposal would monitor any such side effects and, if necessary, allow scope for remedies. | To address concerns that putting a cap on bonuses could mean that bankers would migrate elsewhere, lawmakers emphasized that the proposal would monitor any such side effects and, if necessary, allow scope for remedies. |
| ‘‘If the bonus cap is shown to cause bankers to begin relocating outside the E.U., then we will have the ability to swiftly look again at the provisions in place through an early review,’’ said Vicky Ford, a member of the European Conservatives and Reformists group from Britain. | ‘‘If the bonus cap is shown to cause bankers to begin relocating outside the E.U., then we will have the ability to swiftly look again at the provisions in place through an early review,’’ said Vicky Ford, a member of the European Conservatives and Reformists group from Britain. |
| Alex Beidas, a lawyer based in London with the law firm Linklaters, warned that the legislation signified ‘‘a major disadvantage in the global market’’ for banks, and she said there was ‘‘a real danger that this will result in bankers moving to the U.S. and Asia.’’ | Alex Beidas, a lawyer based in London with the law firm Linklaters, warned that the legislation signified ‘‘a major disadvantage in the global market’’ for banks, and she said there was ‘‘a real danger that this will result in bankers moving to the U.S. and Asia.’’ |
| The rules were ‘‘also likely to lead to an increase in salaries, which is undesirable as banks are trying to minimize their fixed costs,’’ Ms. Beidas said. | The rules were ‘‘also likely to lead to an increase in salaries, which is undesirable as banks are trying to minimize their fixed costs,’’ Ms. Beidas said. |
| The bonus limit is part of a set of measures requiring higher capital requirements for banks, called the Basel III rules, which the E.U. officials also approved Thursday. Mr. Noonan said the Basel III package would ‘‘make sure that banks in the future have enough capital, both in terms of quality and quantity, to withstand shocks’’ and that would ‘‘ensure that taxpayers across Europe are protected into the future.’’ | The bonus limit is part of a set of measures requiring higher capital requirements for banks, called the Basel III rules, which the E.U. officials also approved Thursday. Mr. Noonan said the Basel III package would ‘‘make sure that banks in the future have enough capital, both in terms of quality and quantity, to withstand shocks’’ and that would ‘‘ensure that taxpayers across Europe are protected into the future.’’ |
| Political leaders who hailed the preliminary deal included Martin Schulz, the president of the European Parliament and a German member of the Alliance of Socialists and Democrats. ‘‘The cap on bonuses is a groundbreaking measure that in my view will make the economic system fairer and safer,’’ Mr. Schulz said in a statement. ‘‘Exuberant bonuses often provided a wrong incentive for financial markets, encouraging risky behavior and short-term, purely speculative investment.’’ | Political leaders who hailed the preliminary deal included Martin Schulz, the president of the European Parliament and a German member of the Alliance of Socialists and Democrats. ‘‘The cap on bonuses is a groundbreaking measure that in my view will make the economic system fairer and safer,’’ Mr. Schulz said in a statement. ‘‘Exuberant bonuses often provided a wrong incentive for financial markets, encouraging risky behavior and short-term, purely speculative investment.’’ |
David Jolly contributed reporting from Paris. | David Jolly contributed reporting from Paris. |