European role pay
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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:
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