One Year's Salary: Europe Caps Banker Bonuses
In a bid to address widespread public outrage over greed in the financial sector, European officials have agreed to legislation capping bankers' bonuses at a maximum of a year's salary. Great Britain fought to prevent the measure, but failed to rally enough support.
Starting in 2014, banks in the European Union must limit bonus payments for their employees. After some 10 months of tough negotiations, top European officials agreed late on Wednesday in Brussels to cap bonuses at a maximum of one year's base salary.
The bonus cap was part of a package of financial laws hammered out between EU officials, the European Commission and representatives of the 27 member states in negotiations led by Ireland's Finance Minister Michael Noonan. The goal is to prevent bankers from taking excessive risks, which can shake the financial industry.
"This overhaul of EU banking rules will make sure that banks in the future have enough capital, both in terms of quality and quantity, to withstand shocks," Noonan said. "This will ensure that taxpayers across Europe are protected into the future."
Fierce Resistance from London
European Parliament and member states must still formally approve the compromise, which would allow banks to grant bonuses of twice employees' fixed salary only if the majority of their shareholders approved. The legislation is part of the far-reaching "Basel III" financial reform package aimed at increasing capital requirements to shore up the banking industry.
The new rules will apply to all EU financial institutions and their foreign subsidiaries. It will also apply to the subsidiaries of American or Asian bank with branches in the EU.
Top bankers can currently earn performance-based bonuses of up to several times their salary. But this practice has angered the public, particularly after banks doling out such bonuses accepted government bailouts in the financial crisis. It remains to be seen just how banks will react to the new legislation, but some experts predict that they will simply circumvent it by creating more complicated pay structures.
kla -- with wire reports
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