Europe threatens bankers' bonuses

[Sheilbh]

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.

"For the first time in the history of EU financial market regulation, we will cap bankers' bonuses," said the European Parliament's head negotiator, Austria's Othmar Karas, in a statement. "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."

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.

Wednesday's agreement to implement what will be the world's strictest pay cap was hard-won after months of resistance from member states. Chief among them was Great Britain, which boasts Europe's largest financial sector. London argued that the bonus cap would hobble industry growth, but failed to attract backing from other countries to prevent the measure.
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.

The UK government is still furious about this and want an opt out. It's the first time a financial regulation from the EU has gone contrary to the British goal. Be interesting to see how it plays out with Eurosceptics and the referendum.

Also Switzerland's had a referendum:

Swiss Voters Approve a Plan to Severely Limit Executive Compensation
By RAPHAEL MINDER

GENEVA — Swiss citizens voted Sunday to impose some of the world's most severe restrictions on executive compensation, ignoring a warning from the business lobby that such curbs would undermine the country's investor-friendly image.

The vote gives shareholders of companies listed in Switzerland a binding say on the overall pay packages for executives and directors. Pension funds holding shares in a company would be obligated to take part in votes on compensation packages.

In addition, companies would no longer be allowed to give bonuses to executives joining or leaving the business, or to executives when their company was taken over. Violations could result in fines equal to up to six years of salary and a prison sentence of up to three years.

The outcome of the referendum was a triumph for Thomas Minder, an entrepreneur and member of the Swiss Parliament (no relation to the reporter), who turned a personal fight against the management of Swissair, the flagship airline that collapsed in 2001, into a nationwide referendum against "rip-off merchants."

Almost 68 percent of Swiss voters backed Mr. Minder's proposals, according to results announced late Sunday.

"I am very proud of the Swiss people who have sent a very strong signal to the establishment," Mr. Minder told Swiss television. Despite the fact that his referendum had been opposed by Switzerland's main political parties, Mr. Minder, who is an independent member of the Swiss Parliament, called on all lawmakers to cooperate in swiftly enacting the law.

Nonbinding shareholder votes on executive pay have also been introduced in countries like the United States and Germany in response to Occupy Wall Street and other movements that have attacked the corporate excesses and abuses that fueled the world financial crisis. On Thursday, the European Parliament agreed to limit bonuses of bankers to two times their salaries.

In the case of Switzerland, however, Mr. Minder called for a much broader and tougher clampdown, striking a chord among citizens after the world financial crisis exposed major management failures at the financial giant UBS and other Swiss institutions.

Mr. Minder's case was unexpectedly bolstered last month when Novartis, the pharmaceutical company, agreed to a $78 million severance payout for its departing chairman, Daniel Vasella. That set off a political storm and intense criticism from some investors, forcing Novartis to scrap the payout and prompting Mr. Vasella to tell shareholders that it had been a mistake.

Cristina Gaggini, an official from EconomieSuisse, the Swiss business federation, said Sunday that the business lobby had made some "major errors" in its efforts to stop Mr. Minder's decade-long crusade, adding that the Novartis payout plan had amounted to a turning point in the referendum campaign.

After that, Ms. Gaggini said on Swiss national television, "It became impossible to return to a reasonable debate."

Ahead of the vote, EconomieSuisse and Mr. Minder's other opponents warned of dire consequences if the referendum passed, notably in terms of keeping Switzerland attractive to foreign companies and investors.

But Mr. Minder argued that Switzerland would benefit if it gave shareholders control over the companies in which they invested. Well over half the shares in many of the country's largest companies are already held outside the country. "Investors put their money where they have the most to say, and that will clearly then be Switzerland," Mr. Minder said ahead of the referendum.

Robin Ferracone, chief executive of Farient Advisors, an American advisory firm that specializes in executive compensation issues, said that even though the referendum would add "more burden to corporate processes, I do not predict an exodus from Switzerland," because the tax and other benefits of being based in the country would still outweigh "the inconvenience" of having to adjust to stricter executive compensation rules.

Mr. Minder started his campaign after his family-owned business came close to bankruptcy because it had been a supplier of toothpaste and other body care products to Swissair, the airline that was grounded in October 2001.

While Swissair had run out of money, it still managed to pay an advance earlier that year of 12 million Swiss francs (about $9.6 million at the time) to a chief executive, Mario Corti, who then left shortly after the airline's collapse.

Mr. Minder then broadened his campaign, accusing several bankers and other prominent executives of receiving "rip-off" pay packages. His campaign gained such momentum in recent months that relatively few such executives confronted him publicly, in this neutral and compromise-seeking country.

[The Minsky Moment]

How are they defining "bonus"

Somehow I think that after all is said and done Europe won't lose many bankers over this, but will just gain a bunch more comp lawyers.

[Sheilbh]

No doubt. I'm not sure how they define 'bonus' but it's only of senior managers or 'risk-takers'. I believe they estimate around 500 people would be affected in a big bank, or 5000 in the City as a whole. So that's an area that I'm sure lawyers'll be looking at.

[Ideologue]

Wouldn't they get better results by threatening bankers' families?

[mongers]

+1.

[Caliga]

Wouldn't they get better results by threatening bankers' families?

a.k.a. 'The Italian Plan'

[Grey Fox]

Love that swiss decision.

Fuck the Bankers.

[Warspite]

The Times had an excellent cartoon. "Smith, afraid we can't give you a bonus this year. However, the bank would like to buy your tie for £3 million"

[Martinus]

The Times had an excellent cartoon. "Smith, afraid we can't give you a bonus this year. However, the bank would like to buy your tie for £3 million"

Does "excellent" mean ignorant and not based in reality whatsoever? Because I can think of at least two reasons why this would not be feasible under the new system.

[Warspite]

The Times had an excellent cartoon. "Smith, afraid we can't give you a bonus this year. However, the bank would like to buy your tie for £3 million"

Does "excellent" mean ignorant and not based in reality whatsoever? Because I can think of at least two reasons why this would not be feasible under the new system.

You're right, there are definitely no loopholes to be exploited when it comes to private sector remuneration.

[Valmy]

Love that swiss decision.

Fuck the Bankers.

The Swiss fucking with bankers?  Talk about self-loathing.  Are the Germans about to outlaw sausage?

[fhdz]

I feel like the Swiss reforms are actually quite good.

[The Minsky Moment]

The Times had an excellent cartoon. "Smith, afraid we can't give you a bonus this year. However, the bank would like to buy your tie for £3 million"

Does "excellent" mean ignorant and not based in reality whatsoever? Because I can think of at least two reasons why this would not be feasible under the new system.

Wild guess: The Times cartoonist was not actually giving legal advice that purchasing a tie for 3 million would be permitted under the new regulation.

[fhdz]

 

[Zanza]

I would expect more regulation like the Swiss one in the future. Europeans do not trust the free market to deliver the desired results for society at large.