European bankers are set to see their bonuses capped, under new rules proposed by the European Union.
A provisional agreement has been reached following intense talks in Brussels that involved members of the European parliament, the European Commission and representatives of the 27 governments in the EU.
Under the agreement, which could take effect next year, bankers’ bonuses will be capped at a year’s salary, but they can increase to two years’ pay with shareholder approval.
Othmar Karas, the European parliament's chief negotiator, said: "For the first time in the history of EU financial market regulation, we will cap bankers’ bonuses.
"The essence is that from 2014, European banks will have to set aside more money to be more stable and concentrate on their core business, namely financing the real economy, that of small-and medium-sized enterprises and jobs."
But the proposals have already come in for fierce criticism. London mayor Boris Johnson described them as “a boost for Zürich and Singapore and New York at the expense of a struggling EU”. “This is possibly the most deluded measure to come from Europe since Diocletian tried to fix the price of groceries across the Roman Empire,” he said. He added: “Brussels cannot control the global market for banking talent, Brussels cannot set pay for bankers around the world.”
Dr Pete Hahn, a lecturer at Cass Business School, said: “The current proposal appears aimed at ludicrously legislating the economic cycle and creating ever higher fixed salaries and perks for those leading the largest banks. Those worried about Europe's growth might think about how high fixed pay packages with limited upside might influence senior bankers to increase risk taking or not.”
Sally Percy is editor of The Treasurer