Market opinion | Bob McDowall Pay-caps


Continuing our series of articles on best practice, Bob McDowall looks at the proposed pay-caps for bankers and whether this action is supported by any research or is it a crowd-pleasing political reaction?


The European Union (EU) has passed legislation setting out the rules that will limit bankers’ bonuses to 100% of annual salary, or twice the annual salary if shareholders explicitly approve. The legislation was approved by a majority vote of EU Member States in the face of opposition from the UK, home to Europe’s largest financial centre. The new rules will come into effect January 1, 2014, but the bonus limits do not apply for work carried out before that date, even if bonuses are awarded later. The UK has warned that banks could move their operations to the U.S. or Asia, as a result of the new rules. The rules have the objective of ending a culture of excessive bonuses, which encouraged


76


risk-taking for short-term gains. Politicians in many jurisdictions in the EU have supported the measure specifically because taxpayers have been asked to pick up the bill after the financial crisis through national government intervention and funding. The bonus caps are being presented as part


of an EU Capital Requirements Directive 4, which will oblige banks to put in place a strong financial cushion. This directive aims to reduce incentives for the type of risky behaviour widely blamed for contributing to the global financial crisis which started in 2007. Base salaries have risen substantially at


European-based banking institutions before the Best Execution | Summer 2013


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56  |  Page 57  |  Page 58  |  Page 59  |  Page 60  |  Page 61  |  Page 62  |  Page 63  |  Page 64  |  Page 65  |  Page 66  |  Page 67  |  Page 68  |  Page 69  |  Page 70  |  Page 71  |  Page 72  |  Page 73  |  Page 74  |  Page 75  |  Page 76  |  Page 77  |  Page 78  |  Page 79  |  Page 80  |  Page 81  |  Page 82  |  Page 83  |  Page 84  |  Page 85  |  Page 86  |  Page 87  |  Page 88  |  Page 89  |  Page 90  |  Page 91  |  Page 92