EU set to clampdown on bankers' bonuses

The European Union’s member states look set to back the toughest restrictions yet on bankers’ bonuses.

According to reports in the Financial Times, Brussels lawmakers are expected to pass legislation that would force 40%-60% of bonuses to be deferred for three to five years and half the upfront bonus would have to be paid in shares or other securities linked to the institution’s performance.

This would restrict the cash element of the bonus to just 20%-30%. Member nations will have a degree of discretion in how the rules are enforced but the G20 communique and Basel agreements stress the importance of all of the major financial centres acting in a ‘co-ordinated manner.’

One of the main aims of the legislation is to link bonuses more closely to salary in a move that the EU hopes will reduce the incentive to take risks to ensure a large payout.

Angela Knight, chief executive of the British Bankers’ Association (pictured), said: ‘The majority of the remuneration proposals agreed in Europe were implemented in the UK last year - that is in 2009. In fact the UK was the only country that took these steps and so the main consequence of this European decision is that other European countries will now have to follow suit.
‘There is always more to be done but all politicians, whatever their party, must remember two things: the first is the extent of the changes that have been made by the UK and by UK quartered banks; and second that banking is an international and mobile business.
‘While agreeing the importance of getting the pay and bonus structures right, it is essential that these facts - and particularly the pay rules that have already been applied here - should take priority over a short term political soundbite.’