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Barnier Seeks Shareholder Power Over Bonuses in Basel Law Deal

Michel Barnier
Michel Barnier, financial services commissioner for the European Union (EU). Photographer: Jock Fistick/Bloomberg

The European Union should force shareholders to set limits on bankers’ bonuses as part of a compromise on a draft Basel capital law, the bloc’s financial services chief said.

Under the plan, a lender’s investors would be handed responsibility for fixing a maximum ratio between executives’ bonuses and fixed pay, Michel Barnier, the EU’s commissioner for the internal market, said in an interview with Bloomberg News today. The idea has been discussed by the European Parliament and national officials during negotiations on the Basel legislation, Barnier said.

“My preferred approach is to place greater responsibility in the hands of shareholders, who would have to vote -- it would be obligatory -- on the ratio between fixed and variable pay,” Barnier said. “I would hope that we can find a compromise on that basis.”

Bankers are facing a backlash from European Union lawmakers determined to cut variable pay as part of a quest to reshape lenders as utilities rather than money-making machines. The parliament voted last month to amend the draft Basel bank capital law so that it would ban bonuses that exceed fixed salaries.

The regulatory push comes as public outrage and shareholder rebellions have forced some banks, including Citigroup Inc. and Barclays Plc, to retreat from their initial pay plans.

Corporate Pay

The draft Basel law must be approved by governments in the 27-nation EU and the parliament before it can enter into force. The assembly has faced resistance from some governments to the proposed one-to-one cap for bonuses against fixed pay, with authorities concerned that the measure could damage the EU’s competitiveness and lead banks to increase the fixed pay they offer their executives.

Barnier said that, in addition to the provisions in the Basel law, he will present plans in October to hand a more general obligation to shareholder general assemblies to vote on corporate pay. These proposals will also include boosting transparency of companies’ pay policies, he said.

Separately, Barnier said that he would unveil a draft law on July 3 to prevent Madoff-style fraud by increasing the responsibility placed on depositaries used by retail investment funds.

“Depositaries are going to really have an incentive to pay a lot of attention to the information they provide and the services they offer,” he said.

The draft law would also “introduce rules on the remuneration policies of investment funds, so that they don’t take the excessive risks that we have seen in the banking system,” he said.

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