DealBook: Europe Votes to Curb Banker Bonuses

Frederick Florin/Agence France-Presse — Getty ImagesJose Manuel Barroso, the president of the European Commission, said the rules would “put an end to the culture of excessive bonuses.”

BRUSSELS – European politicians approved major new rules on Tuesday to cap the amount that bankers at the region’s largest institutions can receive in bonuses.

As part of a hard-fought deal, the compensation limits will restrict bonus payments to one year’s base salary, though that figure can be doubled if a majority of shareholders approve.

The legislation had faced major opposition from Britain, home to Europe’s largest financial center, which was eventually outvoted by other European Union countries that wanted to rein in the excesses and risky trading that contributed to the financial crisis.

“The rules will put an end to the culture of excessive bonuses, which encouraged risk-taking for short-term gains,” said José Manuel Barroso, president of the European Commission. “This is a question of fairness. If taxpayers are being asked to pick up the bill after the financial crisis, banks must also make a contribution.”

The legislation will apply to all banks active in Europe, as well as the international divisions of European firms like Barclays and UBS. The bonus limits come as many of the world’s largest financial institutions are slashing jobs and reducing their exposure to risky trading activity in an effort to increase profitability and cut costs.

As part of the deal approved by the European Parliament on Tuesday, at least one quarter of any bonus that exceeds 100 percent of salary must be deferred for at least five years.

“The new set of rules is the farthest-reaching banking regulation in the E.U. to date,” said Othmar Karas, an Austrian member of the Parliament who prepared the report on the law. “The rules on bankers’ bonuses will instill fairness and transparency and contribute to a change in banking culture,” he said.

The new crackdown on bonuses will take effect from the beginning of next year, and forms part of a major overhaul of European banking legislation that also includes new capital requirements for the Continent’s largest banks. Many firms, including HSBC and Deutsche Bank, have been shedding assets in a bid to increase their capital reserves to protect against future financial shocks.

The 27 member states must still give formal approval to the plan, though analysts say that is a mere formality after the European Parliament voted in favor of a previously approved compromise.

Article source: http://dealbook.nytimes.com/2013/04/16/europe-votes-to-curb-banker-bonuses/?partner=rss&emc=rss