Cap Bankers' Bonuses at Half Pay, EU Lawmakers Say

Bankers’ bonuses should be capped at 50 percent of their pay, lawmakers on a European Parliament committee said, as they voted on tougher capital and remuneration rules for banks.

Directors at banks that received public funds would also have their salaries capped at 500,000 euros ($616,000), and at least 40 percent of any bonus would be deferred for five years, under the measures approved by the assembly’s Economic and Monetary Affairs Committee in Strasbourg, France yesterday.

“If bankers and traders want to leave and go to other jurisdictions, it just shows that they do not have confidence in their own performance,”Sharon Bowles, chairwoman of the committee, said in an e-mailed statement today. “To those that would leave I say good riddance.”

Lawmakers around the world have blamed bonuses for the excessive risk-taking that contributed to the worst financial crisis since World War II. Sweden proposed laws last year that would force bankers in Europe to defer part of their bonus for three years and receive at least 50 percent in shares.

The plans for bankers’ pay will be voted on by the whole EU Parliament in July. The measures are proposed changes to draft rules on bank capital published last year by the European Commission, the 27-nation EU’s executive body.

‘Short-Sighted’

“I think it’s extremely short-sighted,” David Buik, a market analyst at inter-dealer broker BGC Partners in London, said in a telephone interview today. “I understand the political expediency, I’m quite happy with capital requirements, but don’t kill off invention and innovation.”

Under the Parliament plan, bankers would be forced to hold on to 90 percent of up-front bonus payments for at least five years, in case their employers needed the money back to cope with short-term funding problems. Directors at banks that received public money would be barred from getting a bonus until the state funds had been repaid.

Royal Bank of Scotland Group Plc’s chairman Philip Hampton was booed by investors at the bank’s annual general meeting in April after saying that investment banking salaries were “high,” though not “obscene.” The bank received a 45.5 billion-pound taxpayer rescue following record losses in 2008.

“RBS has led the way in reforming the structure of pay -- no reward for failure, full clawback and deferral and no cash bonuses for all but the most junior staff,” Michael Strachan, a spokesman at RBS, said in an e-mailed statement.

‘Positively Aligned’

“We want the interest of the person receiving the bonus to be positively aligned with the customers and the shareholders,” Syed Kamall, a U.K. conservative member of the EU parliament, said in a telephone interview today.

“If we start capping bonuses it’s possible we’ll end up with a situation where there’s a much higher basic salary and less of an incentive to perform well,” Kamall said.

Draft EU laws need the approval of governments and the Parliament before they can take effect, a process that can take more than a year.

“The public won’t accept, in the era of austerity, people to make such huge amounts of money,” Peter Skinner, a U.K. Labour member of the EU parliament, said in a telephone interview today. “I saw people in the middle, left and right support it,” Skinner said.

To contact the reporters on this story: Ben Moshinsky in Brussels at bmoshinsky@bloomberg.net

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