European role pay

March 5, 2014

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(Via the Telegraph)

Earlier this week, the European Commission put in place the biggest reform in banker pay since the financial crisis: caps on banker bonuses. Jenny Anderson has a good summary and a link to the rules themselves. Bonuses will be capped at 100% of a European bank employee’s salary, regardless of whether the employee is located in Europe, but can be raised to double that amount with shareholder approval. The UK is considering alternative restrictions, and is challenging the EU’s rules, claiming they’ll make the financial system riskier.

Which isn’t to say Europe’s bonus caps are all that ironclad. First, bankers who earn more than €1 million will have the ability to appeal to the European Banking Authority for an exemption. Second, European banks have already figured creative workarounds  — mostly, it seems, by using euphemisms. “Allowances” and “role-based pay” are the new bonuses. The WSJ has a good Q&A that explains the ins and outs of this.

Barclays CEO Stephen Jenkins said he was forced to raise bonuses — despite falling profits — to stop a “death spiral” of executive departures. It was, Jenkins said, the “hardest decision” he’s had to make since taking over as CEO 2012. This is the opposite of what’s going on at Standard Chartered, where the bonus pool fell 15%. HSBC CEO Stuart Gulliver, meanwhile, received some £1,664,000 in allowances, plus a salary of £1.2 million, the Guardian reports, leading one critic to say the bank “hadn’t so much circumvented rules on bonuses as driven a coach and horses through them.” Matt Levine writes that “perhaps the regulatory theory is to combine tough talk with loose regulation.”

In January, Fitch said that the caps will simply be “avoided” by banks, and that the rules won’t cut compensation costs. The Economist argues the banking industry is in secular decline, and compensation is falling mainly because shareholders are clamoring for banks to cut compensation to improve returns.

Philip Augar argues that banker pay is the symptom, not the cause, of the continent’s banking problems. For now, the industry offers just too much potential profit to reform, he says, calling for separation of trading and advisory businesses in Europe’s banks. “In any other sector that had just been bailed out, customers and shareholders would have demanded that employee remuneration drop to levels comparable with other professions.” — Ryan McCarthy

On to today’s links:

Legal Arcana
Corporate risk factors are really worrying if you take them literally, guacamole edition – BI

Marc Andreessen’s news business fairytale – Ryan Chittum
Best. BuzzFeed. Meeting. Ever: “What about, like… 14 Ways to Know You’re Standing?” – Funny or Die

Ben Bernanke made $250,000 for a 40-minute speech yesterday – Reuters

How hedge funds are using appraisal rights suits (as a way to park cash) – Steven Davidoff

Memento Ponzi
JPMorgan officials seem to have a “pattern of forgetfulness” about Madoff – Ben Protess and Jessica Silver-Greenberg

You Say That Now
Rogue trader goes on pilgrimage from Rome to Paris to protest the “tyranny of the markets” – IBT

Tyler Cowen rips the Paul Ryan report on the War on Poverty – Marginal Revolution

Visualizing how much the 0.01% make – Barry Ritholtz

Niche Markets
Why Sony’s SRF-39FP dominates the prison-radio market – New Yorker

Helvetica: “it’s all about the interrelationship of the negative shape” – Guardian

You are 40% stardust, 60% big bang – Physics Central

Nothing New Under the Sun
There’s a market for Mt Gox asset claims – Wired

The latest development in swaps regulation: “it’s the status quo” – Bloomberg 

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