European banks are set to increase salaries and cash allowances to help retain employees following the introduction of a bonus cap in the region.
About 63 percent of European Union-based lenders will boost base salaries and 55 percent plan to increase cash allowances, according to a survey by Mercer, a unit of Marsh & McLennan Cos. That compares with 13 percent and 47 percent respectively for lenders outside the region, it said.
The EU agreed to ban banker bonuses of more than twice fixed pay to stop excessive payouts it says spurred irresponsible risk taking that fueled the 2008 financial crisis. The U.K. has criticized the cap as harmful to the competitiveness of the nation’s finance industry. Martin Wheatley, chief executive officer of the U.K.’s Financial Conduct Authority, warned that banks are finding ways to sidestep the cap.
Banks are “looking at other methods of making up the shortfall to prevent staff walking into the arms of other less regulated competitors, such as hedge funds,” Mark Quinn, head of talent at Mercer U.K., said in the statement. Both cash allowances and salary increases “are forms of guaranteed cash with no variable link to performance, which is far from satisfactory.”
About 70 percent of EU-based banks said they’ll seek shareholder approval to increase their bonus caps to 200 percent of fixed compensation.
Relying on fixed, guaranteed pay packages undermines the ability of banks to link pay to performance and reduce or not pay deferred compensation in the event of poor results or misconduct, Mercer said. The EU regulations are known as the Capital Requirements Directive IV.
Mercer said the executive compensation survey analyzed 78 financial services firms including 44 banks in 18 countries.