European bankers will be subject to limits on bonus payments they receive starting next year, as a regulatory body of the European Union established a set of guidelines governing remuneration in order to tamp down on excessive risk-taking.
Under the new rules, set up by Committee of European Banking Supervisors (CEBS), the bankers will receive a maximum of a quarter of their bonuses in immediate cash payouts, with the remainder deferred or held in shares for three years at a minimum.
The guidelines also provide for national regulators to rescind bonuses paid to senior managers whose risks were discovered to have produced losses at a financial companies. The rules also seek a direct link between fixed salary and pay.
“An appropriate maximum ratio of the variable to fixed component is a strong and relatively uncomplicated technique for obtaining risk alignment in the remuneration structure,” CEBS stated.
The guidelines are widely seen as being tougher than those recommended by leaders of the G20.
The chairman Lloyd’s Banking Group, Win Bischoff said yesterday that regulations over banker pay should be applied equally across the globe.
"It is very important to have as much as you possibly can a level playing field because you then do not distinguish between regions. Let us see what comes out," Bischoff said to Reuters.
There is concern among many European and British banks that bonus curbs on executives might prompt a massive outflow of top talent to lightly-regulated financial centers like Singapore.
Meanwhile, in Ireland, politicians are seeking to impose a 90 percent “super-tax” on bank bonuses after an outcry over huge payouts (in excess of 40-million euros) were handed out to bankers at Allied Irish Bank (NYSE: AIB).
Finance Minister Brian Lenihan told a radio station that he is prepared to introduce an amendment to the government’s finance bill to apply the tax on bonus payments.
Outrage is mounting in Ireland over bonuses being paid to employees of a failed bank that is receiving huge cash bailouts from the government.
"This move by the AIB is extraordinary and people across the country will be gobsmacked by their behavior," said Paula Clancy, director of the Thinktank for Action on Social Change
In response to the tumult, AIB said that it is being forced to pay bonuses after one of its traders filed legal action against it.
The Irish Banking Officials Association has requested that AIB staff defer the payments until the bank was profitable again.
"They have a responsibility to look at the overall interests of everybody, not just themselves," said IBOA general secretary Larry Broderick.
Lenihan stated yesterday that he didn’t think bonuses would not be sanctioned until banks were again profitable and generated returns for the taxpayer.