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News Analysis: Euro Zone Plan to Limit Bonuses Rattles Bankers

Europe is pushing to cap bankers’ bonuses, but the bankers, once again, may be a step or two ahead of the rule makers.

Like a thunderclap, the European proposal to limit bonuses is reverberating across the global financial industry. Many bankers say, predictably, that such a step would be disastrous. Europe’s sharpest financial minds, the argument goes, will decamp to New York or Hong Kong at the very moment they are needed to help restart Europe’s economy.

Despite the outcry, which is particularly loud in London, the regulations that are being proposed may not turn out to be onerous at all. Bankers are already talking about ways to get around them. And, in any case, big banks have already been retooling pay practices and trying to keep a lid on compensation. Why? To bolster their profits and share prices.

As is often the case with financial regulation that follows a crisis, the risk is that the new rules, while sensible on paper, will be too late. What is more, they could have some adverse, unintended consequences.

The proposal, reached early Thursday under an agreement by European Union lawmakers and government officials, could mean that, starting next year, the coveted bonuses that many bankers across the 27 countries in the bloc receive will be capped at the level of their annual salaries.

Financial firms would be able to hand out payments that amount to double the salaries with the approval of a majority of shareholders. If bonuses exceed salaries, then a quarter of that additional payout must be deferred for at least five years. European officials say that the proposal is not yet final.

The rule’s rationale is to limit the high-reward, high-risk behavior by bankers that contributed to the global financial crisis. And given the high level of government support that banks receive, the argument goes, a bigger say in corporate governance could help prevent another disaster.

European bankers say the rules will prompt top talent to flee to less restrictive regions. Others indicate they will simply find some ways around the rules.

For example, some analysts say lower bonuses will be offset by higher fixed salaries, which could end up placing even heavier financial burdens on banks and their shareholders than bonuses do, because bonuses are easier to adjust from year to year.

Experts also point out that with higher fixed salaries, it will be harder to claw back bonuses from employees whose trades go bad or who violate laws or regulations. That is because most bonuses now are deferred, and are often paid in the form of stock, so they can easily be retracted.

Big banks, like JPMorgan Chase, Royal Bank of Scotland and Barclays, have used clawbacks in this way. And bankers say that this threat has itself become a powerful deterrent to risky or unethical behavior.

But the restrictions may only further solidify the changing world of banker pay, rather than shake up compensation practices.

Big financial firms once had a lot of leeway over how much they paid their employees, but — on paper, at least — that changed considerably after the financial crisis of 2008. With the industry reeling, the Group of 20 countries set up a framework for regulating pay.

One of the top principles was the tying of bankers’ pay to the amount of risk they took when doing trades. Bankers are typically rewarded compensation for one year’s performance, but they receive the cash or the shares that make up that reward over several years.

In theory, that gives banks the ability to cancel that pay if trades do not meet preset targets. This approach does not necessarily focus on the overall level of pay, however.

Raising base salaries could run straight into the framework that linked pay to the financial performance of trades. By promising to pay an employee a large sum upfront, the bank would essentially loosen the link between compensation and risk.

Connecting the two is the main principle at the heart of regulators’ new approach. If traders make a bad bet, it would be harder for bosses to punish them through their paycheck.

Michael J. de la Merced and Peter Eavis contributed reporting from New York.

Article source: http://www.nytimes.com/2013/03/01/business/global/prospect-of-bonus-caps-rattles-uk-bankers.html?partner=rss&emc=rss

Motorola’s Identity Crisis

But the company has never grappled with something like this: a murky future governed by Google, a powerful master with unclear intentions.

In announcing its planned $12.5 billion purchase of Motorola Mobility last week, Google emphasized its interest in the company’s rich trove of 17,000 patents. That portfolio would allow Google to defend itself against foes like Apple and Microsoft in the legal arena, where billions of dollars in patent licensing fees can be indirectly negotiated through lawsuits and countersuits.

But while industry analysts and insiders say the rationale makes sense, they also say it leaves Motorola in an unusual position. Many acquisitions are aimed at creating some well-articulated synergy between the two companies, but Motorola’s future role in this union — beyond patent warehouse — is unclear.

Heightening the uncertainty is that the companies involved, both of which declined to comment, are in some ways as different as two technology companies can be. Google makes Internet services and software, thrives on high profit margins and distributes its product using giant data centers. Motorola makes hardware, has modest margins on a good day and moves its products on trucks and airplanes and through brick-and-mortar stores.

Some hope the cultures will fuse and lead Motorola to a future as storied as its past. Martin Cooper, 82, who worked at Motorola for 30 years and developed the first hand-held cellphones there, said he hoped great things would come from combining Google’s momentum and confidence with Motorola’s tradition of excellence in radio technology.

“The combination might make Motorola successful — again,” said Mr. Cooper, whose patent from the early 1970s for cellular phone technology is among those that hang at the company’s entrance.

At the least, industry analysts said Motorola almost certainly would become a laboratory for Google to seek to perfect Android, its mobile phone software, in concert with newly acquired hardware engineers. Others say Google may wind up giving financial backing to Motorola to help it revive its flagging fortunes in Europe and Asia.

But if it appears to be getting too cozy with Motorola, Google risks upsetting other mobile phone makers like HTC and Samsung, who build some of the most popular smartphones and tablets running on Android.

“How do you compete with your partners and also work with them?” said Ben Schachter, an analyst with Macquarie Capital, who called the situation a “head-scratcher.”

Google has said it will allow Motorola to run independently. But some analysts and investors think Google could markedly pare back or sell big parts of Motorola that create conflicts with partners or are not central to its goals. And that makes for uncertain times for the 19,000 employees at Motorola Mobility in Libertyville, a northern suburb of Chicago, and around the world.

“It’s like, thanks for everything you did in the 20th century, but you’re being bought by a search engine,” said Roger Entner, a telecommunications industry analyst and founder of Recon Analytics, a market research firm. He added, “Nobody ever buys a company and leaves it alone.”

Motorola traces its beginnings to 1928, when two brothers, Paul and Joseph Galvin, started a company making power converters for household radios. In 1947 it changed its name to Motorola, after its popular car radio brand. The company produced radio phones that helped American troops communicate in World War II, car phones in the 1980s, and the trend-setting MicroTac and Razr cellphones, among other products.

But in recent years, after the Razr’s popularity faded, Motorola flirted with financial doom. It was only in the last few quarters that it surged back under the leadership of Sanjay Jha, a former executive at Qualcomm, who joined Motorola in 2008 when it was in danger of missing the rise of the smartphone.

He made significant changes, cutting thousands of employees and splitting the business in two: Motorola Solutions, which sells equipment to businesses, and Motorola Mobility, which handles consumer products like phones and set-top boxes.

Article source: http://feeds.nytimes.com/click.phdo?i=ac00bb0eca8f31b5b9e0e9a9befed098

News Analysis: Euro Zone Plan to Limit Bonuses Rattles Bankers

Motorola’s Identity Crisis

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