Tag Archive: Bonuses


Bank Attempts to Circumvent Bonus Cap Policy in European Union

Weeks after the United Kingdom’s legal challenge to the European Union’s bonus cap policy another challenge has surfaced against the policy.

Now, the second largest bank in the EU, Barclays,  has decided to circumvent the bonus cap policy by providing a new payment plan for the top bankers. 

The EU’s current policy prohibits any bank from giving a banker an annual bonus higher than the amount of her salary or double her salary if the shareholders of the bank have specifically approved of the bonus. 

The new policy that Barclays is discussing would be a cash allowance in addition to annual bonuses and the salary that the banker already receives. The payment plan would include a monthly allowance that would be paid in cash and would not count toward their pensions. Barclays’ new payment scheme would also allow a more flexible payment scheme that can be removed if the employee switches roles at Barclays. This will ensure that the policy is still in compliance with the bonus cap because it is not considered a part of the salary or based on the performance of the employee. 

This proposal is expected to cause a shareholder’s uproar because Barclays has already incurred a 5.8 billion euro fine imposed by banking regulators and a 290 million euro fine for “manipulating the interbank borrowing rate.” 

Barclays has declined to comment about the proposal. There is speculation that the reason that Barclays is employing this payment policy to circumvent the EU policy because of concern that many of the senior staff at the large bank will transfer to banks in Asia and United States.

Barclays is not the only banking company that has made moves to circumvent the EU bonus cap. HSBC Holdings PLC, Europe’s largest lender, stated that it will try to circumvent the EU policy by raising the salary for any banker that works for it.

 

The United Kingdom Challenges the Cap On Banking Bonuses

Part of Basel III, the international regulatory framework for banks  that the EU is currently putting into effect, is being challenged by the United Kingdom (UK).  The UK has a problem with the part of Basel III that imposes a cap on the amount that a banker can earn as a bonus. 

The cap was designed to limit bonuses for bankers up to the amount of bankers salaries. The amount can be higher if the shareholders agree. The UK was the only Member State that opposed the plan during the discussions to implement this regulation.

The six reasons that the UK stated that it does not believe that the cap will not work are:

  1. “It is unfit for purpose, and was introduced without any impact assessment
  2. It unlawfully delegates to the European Banking Authority (EBA) because it concerns policy and is not simply a technical matter
  3. It is legally invalid because it contravenes the legal base of regulation that expressly excludes legislation ‘affecting the rights and interests of employed person’
  4. It is being rushed into effect without the necessary legislation in place including rules determining to whom the cap will apply
  5. It fails to protect personal data
  6. It wrongfully applies outside the European Economic Area”

The challenge was filed with the European Court of Justice on September 20th, 2013 by the Chancellor of Exchequer/Second Lord of Treasury for the United Kingdom. Chancellor George Osborne of Britain believes that this cap will increase the basic salaries of bankers and further reduce the ability to efficiently link performance with pay.

Commenting about the challenge to the regulation, the Chancellor stated that it was to “ensure the legislation respects the EU Treaty.” Cases usually take 18 months to two years to be heard so the UK has stated that it will adhere to the policy while the challenge is taken up.




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