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| Europe Union Agrees on Plan to Limit Bankers’ Bonuses | |
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| BRUSSELS — The European Union took a big step Thursday toward putting strict limits on the bonuses paid to bankers, hoping to discourage the risk-taking behavior that set off the financial crisis. | BRUSSELS — The European Union took a big step Thursday toward putting strict limits on the bonuses paid to bankers, hoping to discourage the risk-taking behavior that set off the financial crisis. |
| If the measure, opposed by the British government, becomes European law, the coveted bonuses that many bankers receive would be capped at no more than equal to their annual salaries, starting next year. Only if a bank’s shareholders approved could a bonus be higher — and even then it would be limited to no more than double the salary. | If the measure, opposed by the British government, becomes European law, the coveted bonuses that many bankers receive would be capped at no more than equal to their annual salaries, starting next year. Only if a bank’s shareholders approved could a bonus be higher — and even then it would be limited to no more than double the salary. |
| The move, part of a package of banking regulations known as Basel III that is aimed at reducing the danger of big bank failures, was hailed Thursday by some European lawmakers. | The move, part of a package of banking regulations known as Basel III that is aimed at reducing the danger of big bank failures, was hailed Thursday by some European lawmakers. |
| ‘'We’ve achieved the most comprehensive banking reform in the European Union,'’ said Othmar Karas, an Austrian member of the European Parliament who helped find a compromise in a late-night negotiating session with representative from E.U. member states and the European Commission. | ‘'We’ve achieved the most comprehensive banking reform in the European Union,'’ said Othmar Karas, an Austrian member of the European Parliament who helped find a compromise in a late-night negotiating session with representative from E.U. member states and the European Commission. |
| A majority of the Union’s 27 member nations would need to approve the rules for them to take effect. | A majority of the Union’s 27 member nations would need to approve the rules for them to take effect. |
| The agreement, which would also apply to those working at overseas offices of European banks, is a potential blow to Britain. Its economy partly relies on generous remuneration packages to ensure that the City of London remains the biggest financial center in Europe and serves as an overseas base for big banks from the United States and Asia. | The agreement, which would also apply to those working at overseas offices of European banks, is a potential blow to Britain. Its economy partly relies on generous remuneration packages to ensure that the City of London remains the biggest financial center in Europe and serves as an overseas base for big banks from the United States and Asia. |
| ‘'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 Thursday while visiting Riga, the capital of Latvia. | ‘'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 Thursday while visiting Riga, the capital of Latvia. |
| Mr. Cameron said Britain would ‘'look carefully'’ at the final proposal before deciding how it would address the issue with other European governments. | Mr. Cameron said Britain would ‘'look carefully'’ at the final proposal before deciding how it would address the issue with other European governments. |
| The agreement on the proposed banking rules reflects the global backlash against the lavish compensation in the financial sector that many politicians say rewarded risky trading and investments that triggered the financial crisis. Voters in Switzerland, which is not an E.U. member, will go to the polls this weekend for a referendum that will decide whether shareholders should have more control over executive compensation. | The agreement on the proposed banking rules reflects the global backlash against the lavish compensation in the financial sector that many politicians say rewarded risky trading and investments that triggered the financial crisis. Voters in Switzerland, which is not an E.U. member, will go to the polls this weekend for a referendum that will decide whether shareholders should have more control over executive compensation. |
| The limits on bonuses 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. | The limits on bonuses 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. |
| ‘'This legislation was resisted tooth and nail by the industry,'’ said Philippe Lamberts, a Belgian member of the Parliament’s Green bloc. | ‘'This legislation was resisted tooth and nail by the industry,'’ said Philippe Lamberts, a Belgian member of the Parliament’s Green bloc. |
| While the battle has often been portrayed as pitting Britain against the Continent, Mr. Lamberts said, the reality has been that ‘'many in Paris, as well as Frankfurt and Berlin, were not too happy'’ about what was happening in Parliament, but were glad to let Britain take the heat for leading the opposition. | While the battle has often been portrayed as pitting Britain against the Continent, Mr. Lamberts said, the reality has been that ‘'many in Paris, as well as Frankfurt and Berlin, were not too happy'’ about what was happening in Parliament, but were glad to let Britain take the heat for leading the opposition. |
| The law is intended to reduce the financial incentives that led bankers to take risky bets, like those made on subprime housing debt in the United States during the credit bubble. But some critics of the legislation have warned that institutions might defeat the intent of the legislation by simply raising bankers’ base pay. | The law is intended to reduce the financial incentives that led bankers to take risky bets, like those made on subprime housing debt in the United States during the credit bubble. But some critics of the legislation have warned that institutions might defeat the intent of the legislation by simply raising bankers’ base pay. |
| Mark Boleat, the policy chairman at the City of London Corp., which is the voice of London’s financial center, said Thursday that ‘'removing flexibility from pay arrangements in this highly cyclical industry would seem counterintuitive, especially if it leads to higher fixed salaries.'’ | Mark Boleat, the policy chairman at the City of London Corp., which is the voice of London’s financial center, said Thursday that ‘'removing flexibility from pay arrangements in this highly cyclical industry would seem counterintuitive, especially if it leads to higher fixed salaries.'’ |
| Some bankers said the rule posed the question of why the bonus cap would not apply to other industries where staff members stand to gain large bonuses. Stephen Hester, the chief executive of Royal Bank of Scotland, told BBC radio on Thursday morning that he did not think ‘'bankers should be treated as special creatures in any way.'’ | Some bankers said the rule posed the question of why the bonus cap would not apply to other industries where staff members stand to gain large bonuses. Stephen Hester, the chief executive of Royal Bank of Scotland, told BBC radio on Thursday morning that he did not think ‘'bankers should be treated as special creatures in any way.'’ |
| ‘'Perhaps one of the problems of the past was bankers got to a point where they thought they were special creatures,'’ Mr. Hester said. ‘'So I think we should apply rules to anyone whatever these rules may be.'’ | ‘'Perhaps one of the problems of the past was bankers got to a point where they thought they were special creatures,'’ Mr. Hester said. ‘'So I think we should apply rules to anyone whatever these rules may be.'’ |
| One senior executive based at a major European bank in Hong Kong, who declined to be identified by name because he was not authorized to speak to the news media, said a move to higher base salaries might have unintended consequences for employees, as it ‘'would make us less flexible and in the event of a downturn we could end up having to put more people out into the street.'’ | One senior executive based at a major European bank in Hong Kong, who declined to be identified by name because he was not authorized to speak to the news media, said a move to higher base salaries might have unintended consequences for employees, as it ‘'would make us less flexible and in the event of a downturn we could end up having to put more people out into the street.'’ |
| Before the proposal can become law, a majority of E.U. states must give their final approval, and there are expected to be more discussions about important details by the European Parliament and individual governments. | Before the proposal can become law, a majority of E.U. states must give their final approval, and there are expected to be more discussions about important details by the European Parliament and individual governments. |
| Mr. Karas, of Austria, 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 by using signing bonuses, exit payments or contract buyouts. | Mr. Karas, of Austria, 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 by using signing bonuses, exit payments or contract buyouts. |
| Michael Noonan, the finance minister of Ireland, which holds the rotating E.U. presidency, said Thursday that he would present the plan at a meeting of European finance ministers next week. | Michael Noonan, the finance minister of Ireland, which holds the rotating E.U. presidency, said Thursday that he would present the plan at a meeting of European finance ministers next week. |
| As it stands, the proposal would mandate a maximum bonus-to-salary ratio of one to one as the standard remuneration limit. That could be raised to two to one if approved by shareholders. | As it stands, the proposal would mandate a maximum bonus-to-salary ratio of one to one as the standard remuneration limit. That could be raised to two to one if approved by shareholders. |
| An E.U. diplomat emphasized 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 final rules would contain a review clause requiring the authorities to assess whether the rules were damaging the banking sector. | An E.U. diplomat emphasized 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 final rules would contain a review clause requiring the authorities to assess whether the rules were damaging the banking sector. |
| The diplomat said that no date had been fixed for the review, but that it could be done over the coming weeks. | The diplomat said that no date had been fixed for the review, but that it could be done over the 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 British Conservatives in the European Parliament. | ‘'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 British Conservatives in the European Parliament. |
| 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.'’ |
| David Jolly reported from Paris. Julia Werdigier contributed reporting from London and Neil Gough from Hong Kong. | David Jolly reported from Paris. Julia Werdigier contributed reporting from London and Neil Gough from Hong Kong. |
David Jolly contributed reporting from Paris. | David Jolly contributed reporting from Paris. |