This page contains a Flash digital edition of a book.
New view on the European Commission

ACCEPTED WISDOM of the European Commission as an organisation populated by power-hungry, career bureaucrats intent on endlessly extending their power is challenged by a new study.

Balance sheet cap solution for bankers’ pay

The level of remuneration paid by banks is a legitimate cause for concern, argues researcher Dr John Thanassoulis of the University of Oxford. However, placing a cap not on individual bankers’ pay but on the proportion of the balance sheet which a bank can use for bonuses offers a sensible way forward for financial institutions.

A new study of data on the banks and financial institutions traded on the New York Stock Exchange (NYSE) over the last decade finds that in about ten per cent of cases the remuneration bill was worth more than 80 per cent of total shareholder equity. “This is quite a disturbing finding because these are large payments which can potentially make the difference between investors having and losing confidence in a financial institution,” Dr Thanassoulis points out. The EU parliament has agreed explicit caps on individual’s bonuses; in the US regulators are consulting on a new system of regulatory sign-off for individual bonus arrangements. Both of these solutions will result in banks pushing up wages to make up for bonuses. Dr Thanassoulis argues that banks will find themselves with very large fixed

wage bills which they have to pay in bad as well as good times; so increasing risks to the banking sector. A better solution, Dr Thanassoulis argues, is a weak cap on the proportion of the balance sheet which can be used for bonuses which can be structured to both lower the risk of financial institutions and increase the value of those same institutions. The cap would dampen the

competition between financial institutions for bankers and so lower the levels of compensation. It would be set at a level generous enough to allow banks to hire their bankers using variable compensation without having to increase fixed wages, and as the cap is at the balance sheet level and not at a per person level, policymakers do not need to intervene in the business decisions of how much to reward an individual. “This cap would be a win-win solution for financial institutions,” Dr Thanassoulis concludes. “The only losers would be bankers in that market levels of compensation would be reduced.” n

i Contact Dr John Thanassoulis,

University of Oxford Email Telephone 01865 271060 ESRC Grant Number RES-000-22-3468


Based on original survey and interview data, researchers found that EC officials were not typically career bureaucrats: nearly as many were recruited from the private sector as from national administrations. Although most officials decided on a career in Brussels in order to ‘build Europe’, they are increasingly attracted by material conditions, such as competitive remuneration and career security, rather than federalist idealism. Importantly, officials respect the role and responsibilities of other institutions, and take a nuanced view as to whether decision-making authority should be located at the EU or the national level. Enlargement, officials suggest, was not well handled, but it has made the Commission younger, better educated and more female. n


Contact Professor Hussein Kassim, University of East Anglia Email Telephone 01603 593476 ESRC Grant Number RES-062-23-1188

© iStockphoto

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