Most Banks Expect Salary Increases to Offset EU Bonus Cap

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.

The poll, of more than 150 human resources employees attending a conference in London last month, 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. Finance workers will also receive more training, increased pension contributions and flexible working programs as a result of the bonus rules, the report said.

Banks “are aware that when the EU bonus cap comes into force, many of their employees are going to receive overall lower pay and they recognize the need to make up for this shortfall in a number of different ways,” Mark Shelton, a managing director at Towers Watson, said in a statement.

The EU’s European Banking Authority released draft rules last month increasing the scope of rules that block bonuses of more than double fixed pay. The EBA defined anyone earning more than 500,000 euros ($664,000) as a “risk-taker,” ensnaring them in the rule.

Foreign Benefit

When asked which financial market may benefit the most from staff fleeing the bonus cap, 42 percent of the respondents said New York, followed by Hong Kong with 26 percent, Singapore with 16 percent and Switzerland with 11 percent.

Martin Wheatley, chief executive officer of the Financial Conduct Authority, said last month that the bonus cap would drive up basic salaries and limit regulators’ ability to “punish poor behavior.”

Before the latest version of the EBA rules, the U.K. had 1,300 people that would have been affected by the cap, Andrew Bailey, chief executive officer of the U.K.’s Prudential Regulation Authority, said on March 13.

According to “back of the envelope” calculations, employees might get as much as 500 million pounds more in base pay to offset the limit, Bailey said.

The European Securities and Markets Authority, the EU’s top markets regulator, clarified guidelines today on pay for investment advisers, warning that bonus programs shouldn’t be incentives to sell inappropriate products to customers.

“Firms should therefore make sure that their remuneration practices take into account conflicts of interest that arise when providing investment services to their clients,” Steven Maijoor, ESMA chairman, said in an e-mailed statement.

“Remuneration schemes that encourage bias towards products that are easier, quicker or more profitable to sell, but which are not suitable for the client’s needs, should be eradicated,” he said.

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