Parliament’s plans go much farther than internationally agreed principles.
MEPs are planning to toughen up rules on bankers’ bonuses, going much farther than internationally agreed principles on remuneration in the financial sector.
UK centre-left MEP Arlene McCarthy, who is leading the European Parliament’s work on new capital-requirements rules, wants banks that have received state funding to repay taxpayers and strengthen their capital base before being allowed to pay bonuses to their directors. She is also proposing that financial institutions should not pay bonuses worth more than 50% of an individual’s total annual pay.
Both of these proposals go beyond a set of ‘principles for sound compensation practices’ agreed by the G20 group of countries in September 2009. According to these principles, payment of a “significant” part of bonuses should be deferred and tied to future performance.
“Tough rules are necessary to bring about a permanent change to a bonus culture that helped cause the financial crisis,” McCarthy said.
She wants the rules to be added to draft legislation on capital requirements presented by the European Commission in July 2009. The original proposal was mainly concerned with raising the capital requirements that banks must hold to protect themselves from risk, although it did propose that banks should face sanctions if they pursue irresponsible remuneration policies.
McCarthy’s proposals, which are expected to be supported by the Parliament’s economic and monetary affairs committee (ECON), also go farther than an agreement reached by finance ministers in November.
Although ministers added some details on remuneration, they stuck closely to what had been agreed at G20 level. Some EU governments have been prepared to go beyond the G20 agreement in practice – both France and the UK imposed a one-off bonus tax last year – and the Parliament’s proposals stand a good chance of winning their support.
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A spokesperson for the European Banking Federation said: “If remuneration policies of EU banks become subject to stricter regulation, it would become very difficult for EU banks to attract and retain talented employees.”
The ECON committee will hold its first discussion on the dossier on 17 March. The committee plans to seek a deal with governments during May so that the legislation can be adopted before the Parliament’s summer break.