Brussels, 04/03/2014 (Agence Europe) - On Tuesday 4 March, the European Commission unveiled draft new rules to identify people in the financial world whose work impacts on his or her employer's risk profile and is therefore subject to the new EU cap on bank bonuses.
For the first time in the EU, the European Parliament's firm line on bank bonuses has led to caps on the variable pay of bankers and investment company managers (see EUROPE 10812). Bonuses must be below the fixed salary level (1: 1 ratio) although if the majority of shareholders give the go-ahead, then bonuses can be double the fixed salary levels (2: 1 ratio). The rules apply to all European Union banks, their subsidiaries outside the EU and non-EU banks registered in the EU.
In order to prevent financial companies from getting round the rules, the Commission has suggested a number of criteria for identifying bankers whose work impacts on the bank's risk profile and who would therefore be covered by the bonus cap later this year, based on recommendations from the European Banking Authority (EBA). Fifteen criteria are qualitative and job-related (for example, decision-making powers, membership of a management committee or the power to significantly expose the bank to certain types of risk). Quantitative criteria set pay levels in absolute and relative terms: - total pay of above €500,000 a year; - the top 0.3% best-paid individuals in a financial institution; - pay of at least as much as the smallest amount earned by a member of the board of managers or other personnel with the power to take decisions on behalf of the bank or financial institution.
Under very strict conditions, banks would be able to justify exempting people who meet these identification criteria from the bank bonus caps. For total pay of above €500,000, national bank authorities must be informed of bonuses that exceed the EU rules. The national authorities must give their approval for total pay of above €750,000 and the EBA must give its approval for total pay of over a million euros). (MB)