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About 35,000 Global Bank Employees May Face EU’s Bonus Curbs

U.K. Chancellor of the Exchequer George Osborne
U.K. Chancellor of the Exchequer George Osborne opposed the banker bonus curbs, saying they would harm the competitiveness of the nation’s finance industry. Photographer: Simon Dawson/Bloomberg

Sept. 5 (Bloomberg) -- About 35,000 employees at banks around the world may be caught by European Union bonus caps, more than 20 times the current number of people affected by the pay rules, the British Bankers’ Association said.

The workers facing the EU rules, which would cap bonuses at twice annual pay, include 23,450 bankers in the U.K., 2,835 in other EU countries and 8,777 around the world, the industry group said in a report posted on the European Banking Authority’s website. The BBA asked the regulator to delay the introduction of tougher bonus rules for one year.

Banker pay has been targeted by regulators and lawmakers since the 2008 financial crisis, with the EU adopting the two-to-one cap on bonuses earlier this year. The EBA, set up in 2011 to harmonize banking rules across the EU, defined anyone earning more than 500,000 euros ($659,000) as a “risk-taker,” making them subject to the pay cap.

“Identifying material risk takers solely on the basis of their remuneration package is plainly wrong,” Simon Hills, the BBA’s executive director, said in a telephone interview in London. “Many people paid more than the 500,000-euro hurdle perform roles that don’t result in their taking material risk for their institution and we hope that the EBA will think again on this aspect of its approach.”

The increase is a result of the EBA’s stricter definition of a risk-taker, the BBA said. The EBA also targeted the best paid 0.3 percent of workers at every bank, and some bankers with bonuses exceeding 75,000 euros, in the plans.

The BBA said about 1,500 employees would face caps under previous versions of the rules. The affected workers could be at EU-based banks anywhere in the world or at European subsidiaries of non-EU lenders.

Year Delay

The BBA is concerned that banks will struggle to implement the requirements in time for the 2014 bonus round early next year.

Franca Congiu, a spokeswoman for the EBA, declined to comment on the BBA report.

A delay to 2015 would give banks “sufficient time to design and finalise the necessary contractual amendments,” the BBA said in the report.

“I can understand why they’re asking for a one-year extension,” Alex Beidas, an employment compensation lawyer at Linklaters LLP in London, said in a telephone interview. “You need to make sure that people in banks are aware of the rules that apply to them.”

It’s possible the EBA “will be helpful in this regard” and grant the extension, Beidas said.

Higher Salaries

More than half of global banks said they would increase salaries to offset the effect of European Union bonus caps, according to a study by human resources consultants Towers Watson & Co. in June.

The poll, of more than 150 human resources employees attending a conference in London, found that 7 percent thought the EU rules would be successful in reducing pay across the financial services industry. About 53 percent said they would increase pay.

The EU brokered a deal in February to outlaw banker bonuses that are more than twice fixed pay, a move lawmakers said would prevent excessive payouts and curb irresponsible risk-taking. U.K. Chancellor of the Exchequer George Osborne opposed the curbs, saying they would harm the competitiveness of the nation’s finance industry.

Martin Wheatley, the top U.K. markets regulator, criticized the cap earlier this year telling an audience of London financial executives that it would drive up base salaries and limit regulators’ ability to “punish poor behavior.”

“I’m not sure it’s a good thing,” Wheatley said. The last time U.K. regulators “focused on bonuses, banks increased the salary of their VPs by 100 percent,” he said.

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

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net

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