March 6, 2012

EU May Regulate Banker Pay

Could limit bonuses, range between top and bottom

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European Union officials could include in their draft bank capital law measures to limit banker pay, setting in place a specified limit between the highest and lowest paid, as well as instituting a limit on bonuses.

Bloomberg reported that support seems to be strong for limits to be introduced on how much bankers are paid, and for EU officials to include such limits in the draft law on bank capital that is set to take effect on Jan. 1, 2013.

The draft was introduced last year by Michel Barnier, the EU’s financial services chief, to put in place changes to bank rules agreed on by the Basel Committee on Banking Supervision. Barnier has already said that he is considering proposing extra rules on bonuses in response to payouts that go against “all reason, common sense and morality,” but a number of officials want faster action–hence, the possibility of inclusion of such rules in the draft law.

Socialist and Green party members of the European Parliament have suggested that the bank capital law should also include pay limits and tighter controls on risk-taking. Udo Bullmann, a German lawmaker who has been tracking the proposed law for the Socialist members, was quoted saying, “Wrong incentives were part of the banking culture that caused the crisis. I expect there will be quite a lot of sympathy among different party groups” for tighter pay restrictions.

Bullmann and Philippe Lamberts, a Belgian lawmaker tracking the law for the Greens in the European Parliament, will ask for a maximum ratio between highest and lowest paid bank personnel. Lamberts had said in an interview that lawmakers “have been adamant” that additional limits on pay are necessary.

Sylvie Watts, a lawyer at Allen & Overy LLP in the U.K., was quoted saying, “It is hard to see how imposing a maximum ratio would work in practice, particularly as so much of bank remuneration is performance linked.” However, perhaps not everyone would be unhappy with the move; Watts added that the measure “could also have the effect of increasing the overall pay levels at the lower end of the pay scale.”

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