Brussels, 23/06/2010 (Agence Europe) - On Tuesday 22 June, the MEPs on the European Parliament's economic and monetary affairs committee adopted a draft own initiative report by Saïd El Khadraoui (S&D, Belgium) on the pay of directors of limited companies quoted on the stock exchange and bonus policy in the financial industry. An alliance of ALDE and EPP MEPs was able to scupper the rapporteur's initial idea that the variable rate of pay (comprising commission and/or bonuses) should make up no more than 50% of total annual income, despite the fact that this measure is set out in the ideas on pay and bonuses in the banking industry that were agreed to by all the big political parties at the EP last week when the economic and monetary affairs committee adopted the draft McCarthy Report on the draft Basel III Directive (see EUROPE 10160). In the end, the report was changed to match the initial draft of the Basel III Directive unveiled by the European Commission because MEPs simply state that it is important to strike the right balance between fixed and variable pay. In a press release, El Khadraoui said that he had suggested that commission and bonuses should make up no more than half of total annual income but this had been opposed by some liberals and conservatives. El Khadraoui said that their attitude didn't make sense because only a few weeks ago, the very same MEPs had backed a similar measure in the new bank rules. Sources close to the rapporteur suggest that the reason given by the MEPs for their U-turn was their desire to take the same line as the Council of Ministers on the Basel III Directive, which is identical to the European Commission's initial proposal. In a press release, S³awomir Nitras (EPP, Poland) said that unreasonable bonuses and commission payments should be stopped but the EPP does not want a one-size-fits-all approach and abnormal situations should be regulated but not over-regulated.
Apart from their disagreement on this issue, the MEPs all agree that the European Commission should be asked to submit strict and binding principles governing pay policy in the financial industry, such as matching pay with risk; deciding in advance on measurable performance indicators that cover the bank or financial institution's long-term interests; holding back at least 40% of bonus payments for five years, or even 60% if the bonus is “particularly high” (identical wording to the draft Basel III Directive); and scrapping golden parachutes for bad performance. The MEPs recommend the introduction of a publication system to force quoted companies that do not comply with these measures to justify their behaviour. They feel that bonuses should not be tax-free. The MEPs want the Commission to clarify the role of supervision authorities in monitoring pay and bonus policy. The European Parliament plenary will vote on the draft El Khadraoui report next month. (M.B./transl.fl)