Millionaire Bankers Win Chance of EU Bonus-Caps Reprieve

Bankers who earn more than 1 million euros ($1.4 million) won the chance of a reprieve from European Union bonus curbs as regulators published a blueprint to implement rules on rewards for irresponsible risk-taking. The plans published today set out which bankers should be covered by EU requirements that ban bonuses of more than twice fixed pay. While the restrictions will automatically hit senior managers and employees able to take significant investment decisions, the European Commission offered the possibility of exemptions for others. “These standards will provide clarity on who new EU rules on bonuses actually apply to, which is key to preventing circumvention,” Michel Barnier, the EU’s financial-services chief, said in an e-mailed statement. The EU agreed on rules last year that would restrict bonuses, a move lawmakers said would prevent excessive payouts for the gambling behavior blamed for triggering the 2008 financial crisis. The U.K. government challenged the caps at the EU’s highest court in September, saying they were illegal. The rules took effect on Jan. 1, meaning that the limits will apply for the first time to bonuses awarded in 2015 based on 2014 performance.

Draft Standards

Under the draft standards, bankers would be subject to the bonus caps if they meet one of a set of “qualitative criteria” relating to their role and decision-making powers, the commission said. Employees would also be covered if their pay surpasses one of several numerical thresholds, including if their total compensation is more than 500,000 euros per year, the commission said. Other such criteria include if someone is in the top 0.3 percent of earners in the bank or if their pay is equal or greater to “the lowest total remuneration of senior management and other risk takers,” the commission said. Still, bankers covered only by the numerical thresholds may win exemptions “under very strict conditions and always subject to supervisory review,” the commission said. According to the commission plan, national regulators would need to give prior approval for any such exemption for a banker earning 750,000 euros of more, while the European Banking Authority would also need to be notified in advance in the case of carve outs for bankers earning more than 1 million euros.

Exemption Criteria

In each case, “the burden of proof will rest squarely on the institutions to demonstrate that, despite the very high remuneration, the staff member in question does not in fact have any material impact on the institution’s risk profile, on the basis of the business unit they are working in, as well as of their duties and activities,” the commission said. The draft standards are targeted at ensuring that “material-risk takers” are hit by the pay curbs, the commission said. The criteria are tougher than the ones currently used by the EU, meaning more bankers would be caught by the bloc’s bonus rules, it said. “Some banks are doing their utmost to circumvent remuneration rules,” Barnier said. “The commission will remain vigilant to ensure that new rules are applied in full.” The rules on implementation published today can be challenged by national governments and European Parliament lawmakers before they become final. Source :  http://www.bloomberg.com/news/2014-03-04/bankers-may-win-bonus-rule-exemptions-in-eu-commission-plan.html