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Europe puts limits on banker bonuses

The European Parliament passed a bill today that would cap and defer financial traders' and bankers' bonuses, giving Europe the toughest regimes in the world. The caps are a backlash against the global financial meltdown, and the bonuses that followed.

By Correspondent / July 7, 2010

EU internal market and services commissioner Michel Barnier (R) speaks on July 7 during a working session on financial markets and economic governance at the European Parliament in Strasbourg, France. The parliament stopped unrestricted bonuses for some bankers and traders in Europe on Wednesday when it approved limits due to come into force in January, 2011.

Georges Gobel/AFP Photo/Newscom

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London

A crackdown on unlimited bonuses for bankers and financial traders was approved today by members of the European Parliament in a move that gives the 27-country European Union one of the world’s toughest regimes in the field.

The new rules are both a response to public outrage at the size of the payouts and a bid to tackle a risk-taking culture blamed for the global financial meltdown.

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The EU will require 40 percent to 60 percent of bonuses to be deferred for three to five years. Half of any upfront bonus will be paid in shares or in other securities linked to the bank’s performance so that the money can be recovered if the bank runs into difficulty. Banks that get government bailouts will have to report how many of their employees make more than 1 million euros ($1.26 million).

But while today’s vote rubber stamps measures that were originally agreed to by the G20 nations and European Union member states last month, much will depend on how strictly regulators in individual EU states choose to enforce the rules after finance ministers meet next week to endorse the new regime.

“It’s a directive and leaves some leeway to member states to implement the legislation, having regard to domestic conditions,” explains Philip Whyte, an analyst at the Centre for European Reform, a London-based think tank.

Some nations have already taken steps to curb bank bonuses. For example, Britain levied a 50 percent tax on bank bonuses this past year. And France's Nicolas Sarkozy appointed a pay czar last summer to monitor bonuses paid to financial industry executives and traders. Former French central banker and IMF managing director Michel Camdessus, was given the job of tracking the bonuses of the 100 highest-paid traders at each bank in France.

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