EU CAPS Bank Bonuses: Company Performance To Dictate Bonus Pay - HuffPo

[WillyT]

EU CAPS Bank Bonuses: Company Performance To Dictate Bonus Pay
AOIFE WHITE | 07/ 7/10 08:28 AM | AP

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BRUSSELS — European Union lawmakers have voted overwhelmingly to cap bankers' short-term cash bonuses from next year, a move that European leaders hope other parts of the world will follow. Members of the European Parliament voted 625-28 in favor of the new rules which will become final when they are approved by EU finance ministers as expected soon as next week.

From 2011, bankers will only be able to get part of their yearly bonuses in cash upfront. The other 70 percent will be held back and paid out if the company performs well. The caps come after a European outcry over payments to executives of banks that received huge state bailouts during the financial crisis. Some say bonuses encouraged bankers to take massive risks at the expense of the long-term future of their businesses.

Michel Barnier, the EU's financial services commissioner, said the new rules sent a strong message that "there will be no return to business as usual." "Banks will need to change radically their practices and the mentality that have led in many cases to excessive risk-taking and contributed to the financial crisis."

Starting next January, cash bonuses will be capped at 30 percent of the total bonus and 20 percent for "particularly large" bonuses. The measure leaves it to individual governments to determine what "particularly large" means in their economies.

While some European countries including Britain have already imposed limits on banker bonuses, the new rules set minimum caps for all 27 members of the EU. French and German governments have also effectively set caps by pressing banks to agree to limit executive pay. A large part of the bonus must be deferred, thought it is up to governments to determine for how long. At least half of the total bonus will be held as "contingent capital" for banks to call on first if they urgently need funding.

The measure also limits "exceptional pension payments" to avoid the kind of bloated severance packages for disgraced departing executives that have caused public uproar around Europe. Banks will also be required to hold a minimum amount of capital to ensure they are covering risk from their trading book and complex securitized investments – such as mortgage-backed securities – to avoid a repeat of risk-related losses like those seen during the financial meltdown. The capital requirements will take effect in 2012.

This could force banks to hold three to four times more capital against their trading risk than they do at present. Barnier, however, insists there would be an upside because the tougher requirements would help make the banking sector better able to cope with risk.

Global banking regulators are also separately drafting tighter capital requirements that European banks complain could force them to put aside far more money to counter risks. They say this could hit their profits and even force them to curb lending to companies and households.

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Link: http://www.huffingtonpost.com/2010/07/07/eu-caps-bank-bonuses-comp_n_637600.html

Can we join the EU???

:evilgrin:

[Arctic Dave]

1. Good definition of a "particularly large bonus" IMO

10x's the salary of the lowest paid person or contractor in the company.

[WillyT]

2. Sounds Like A Good Place To Start...

They'd sure have an incentive to make sure the lowest paid, wasn't very low.

:applause:

:hi: