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EU bonus cap could double bankers' salaries, City regulator warns EU bonus cap could double bankers' salaries, City regulator warns
(4 months later)
A European plan to limit bankers' bonuses could have the perverse effect of leading to a doubling of their salaries, the chief executive of the new City regulator, the Financial Conduct Authority, has warned.A European plan to limit bankers' bonuses could have the perverse effect of leading to a doubling of their salaries, the chief executive of the new City regulator, the Financial Conduct Authority, has warned.
Martin Wheatley told a conference that the attempt to cap bonuses at 100% of salary for anyone earning more than €500,000 (£420,000) could make it difficult to "punish" bankers by clawing back payments when things go wrong.Martin Wheatley told a conference that the attempt to cap bonuses at 100% of salary for anyone earning more than €500,000 (£420,000) could make it difficult to "punish" bankers by clawing back payments when things go wrong.
The European Union has provisionally agreed a deal to cap bonuses at one times salary – or double that with shareholder approval.The European Union has provisionally agreed a deal to cap bonuses at one times salary – or double that with shareholder approval.
The last time regulators attempted to restrict bonuses, pay of middle-ranking bank staff, known as "vice presidents", had gone up "by 100%", said Wheatley. "And the same thing will happen again."The last time regulators attempted to restrict bonuses, pay of middle-ranking bank staff, known as "vice presidents", had gone up "by 100%", said Wheatley. "And the same thing will happen again."
The precise details of the proposals by the European Banking Authority, which sets the rules for members of the EU, are expected to be published shortly. But according to leaks on Friday, the EBA is for the first time publishing a basic salary level – €500,000 – at which the cap, approved by the European parliament, kicks in.The precise details of the proposals by the European Banking Authority, which sets the rules for members of the EU, are expected to be published shortly. But according to leaks on Friday, the EBA is for the first time publishing a basic salary level – €500,000 – at which the cap, approved by the European parliament, kicks in.
Tim Breedon, the former chief executive of Legal & General who is now a non-executive director at Barclays, acknowledged that the way bonuses across the industry had been structured before the financial crisis had been a "catastrophic failure". Barclays is now trying to link pay to the conduct of its staff, not just their financial performance but is yet to decide how to react to any cap on bonuses.Tim Breedon, the former chief executive of Legal & General who is now a non-executive director at Barclays, acknowledged that the way bonuses across the industry had been structured before the financial crisis had been a "catastrophic failure". Barclays is now trying to link pay to the conduct of its staff, not just their financial performance but is yet to decide how to react to any cap on bonuses.
When the idea of a bonus cap was first raised earlier this year, Andrew Bailey, the head of the Prudential Regulation Authority, the City's new banking regulator, warned it could push up banking salaries by £500m a year.When the idea of a bonus cap was first raised earlier this year, Andrew Bailey, the head of the Prudential Regulation Authority, the City's new banking regulator, warned it could push up banking salaries by £500m a year.
Experts at PricewaterhouseCoopers estimated last week that up to 10 times as many bankers as expected could be captured by the cap if the EBA does set a minimum pay level of €500,000. It hinges around defining those deemed to be "material risk takers" who are supposed to covered by the bonus cap. Until now it has been up to the banks to decide which of their staff falls into this category.Experts at PricewaterhouseCoopers estimated last week that up to 10 times as many bankers as expected could be captured by the cap if the EBA does set a minimum pay level of €500,000. It hinges around defining those deemed to be "material risk takers" who are supposed to covered by the bonus cap. Until now it has been up to the banks to decide which of their staff falls into this category.
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