European Union banking supervisors agreed on finalised mandatory guidelines for awarding bank bonuses on Friday, saying many could expect as little as 20 percent in cash although key requirements could be "neutralised" for less risky firms and staff.
The Committee of European Banking Supervisors (CEBS) alarmed banks in October when it published the guidelines in draft form, as they went beyond what world leaders at the Group of 20 countries agreed. Bankers and lawyers said the more flexible, revised guidelines which take effect in January remain the toughest pay curbs in the world.
"CEBS has considered the feedback received and has revised its initial proposal in order to address the main issues and concerns raised, namely those related to proportionality," the committee said. The guidelines will cover the 2010 bonus round onwards and are more stringent than remuneration principles world leaders at the Group of 20 countries agreed to introduce. The revised guidelines surprised bankers and lawyers by including the ability for firms or staff who take on little risk to "neutralise" some requirements.
Lawyers welcomed the less rigid criteria for deciding which types of staff should come under the net, focusing less on income and more on risk taking and responsibilities. The guidelines flesh out a reform of the EU's bank capital requirements which included tough remuneration curbs inserted by the European Parliament, leaving CEBS with little wriggle room.
This means the minimum portion of 40 to 60 percent of variable pay must be deferred over three to five years with at least 50 percent of variable pay in the form of equity-linked instruments, all remain unchanged from the October draft. Some top flight bankers will still end up having only 20 percent of a bonus upfront in cash - and as little as half that once tax is paid on it.
But in order meet a proportionality principle in the EU framework law, firms can "neutralise" some elements "if this is reconcilable with the risk profile, risk appetite and the strategy of the institution", CEBS said. This means that some firms, either for all or some of their staff can put aside the requirements on variable pay in equity-linked instruments, retention or deferral.
But supervisors must make sure that in applying this principle the objectives of the guidelines to cut excessive risk taking or a level playing field among different firms and jurisdictions are not affected. Stefan Martin, a partner at Allen & Overy lawfirm, said the "neutralisation" provision was a significant change and could offer an escape route for brokers and market makers who act as intermediaries and not committing the firm to major risks.
"That will be seized on not just by smaller firms but across the board to try and justify why for particular employees a particular provision in not proportionate," Martin said. The ability to neutralise some requirements will be useful for smaller and less complex firms who have no listing to offer deferred payment in shares, said Irving Henry, a policy director at the British Bankers' Association.
Comments
Comments are closed.