Brussels, 30/06/2010 (Agence Europe) - On Tuesday 29 June, the European Parliament (EP) and the Council of the EU reached political agreement on the draft “Basel III” directive which refers to banks' remuneration policies (see EUROPE 10160). This directive will, for the first time, set a cap on bonuses (including on retirement perquisites) and link them to salary, according to the guidelines which will be developed by the new European Banking Supervision Authority (EBA). It will also establish a link between payment of bonuses and the medium-term performance of the banking establishment. “Two years on from the global financial crisis, these tough new rules on bonuses will transform the bonus culture and end incentives for excessive risk taking. … The public want banks to prioritise stability and lending over their own pay and perks,” said Arlene McCarthy (S&D, UK), the EP rapporteur on this issue, in a press release. The EP first, followed by the Council will approve the political agreement once the texts have been finalised, with arrangements on bonuses being applied from the start of 2011.
Payment of a substantial amount of the variable part of remuneration will be differed for a period of at least three years. Pascal Canfin (Greens/EFA, France) says this is a sum which equates to 40% of the bonus. Vicky Ford (ECR, UK) suggests it is 50%. The part of the bonus paid in cash will not exceed 50%, according to Canfin, and 30% according to Ford. The inclusion of quantified caps represents a victory for the EP, as the Council would have been happy with something less precise. Even more than the UK, France “resisted” and only accepted the Parliament compromise “for fear of being publicly overwhelmed on its left by British Conservatives,” Canfin said. Banks will have to inform the supervisor of the number of employees receiving more than €1 million.
Stricter rules target banking institutions which received pubic aid. MEPs had to admit defeat in their request for total remuneration of the heads of such establishments to €500,000. According to the Council, there is no legal basis for setting a European remuneration threshold.
As a general rule, bosses of banks dependent on public support will not receive any bonuses unless this variable part of the remuneration proves justified. Appropriate replacement of own funds plus full repayment of state aid received could justify payment of a bonus. Here again, the EBA will be responsible for producing guidelines. (M.B./transl/.rt)