Stopping the Greed or Shunning the Talent: is the EU going too far with bankers’ bonus caps?

Stopping the Greed or Shunning the Talent: is the EU going too far with bankers’ bonus caps?

The EU is at it again! The chief financial services officer of the EU, Michel Barnier, pledged to stop banks’ practices of sidestepping the EU cap on bonuses. On Sunday Mr Barnier asked the European Banking Authority to complete, by the end of September, its investigation into whether the quarterly and monthly allowances several banks have begun giving top staff to increase their fixed pay can be allowed under the EU bonus cap rule.

Amid much furore from the banks, and in the wake of the bonus scandals linked to the most recent financial crisis, the EU announced caps on bonuses for bankers which came into effect at the beginning of this year. The caps mean that bankers working in Europe can only be paid a bonus of less than or equal to their annual salary or, with shareholder approval, up to twice as much.

The reasoning behind the caps, according the EU, is to prevent the kind of pay structure (small salaries, large bonuses) which incentivises big risk taking in the short term, and to bring more transparency into the murky world of bankers’ pay. There are some restrictions on who is included in the cap. It basically covers high earners (over €500,000), senior managers and heads of important departments. Banks can seek to have some of its employees excluded from the cap if their functions do not affect the bank’s risk profile.

As expected, the bankers have not taken  kindly to the caps, and some banks  have come under scrutiny of late for t

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About the author:
Prior to joining LexisNexis Michelle worked at Bingham McCutchen LLP as a financial services associate in Washington, DC and London. At Bingham, Michelle represented financial institutions in connection with regulatory investigations and enforcement actions and advised UK and foreign broker-dealers regarding doing business in the USA. Michelle spent 6 months on secondment at JP Morgan in New York.