Brussels, 08/09/2014 (Agence Europe) - The Commissioner for the Internal Market, Michel Barnier, has repeated his deep concern about the trend displayed by certain banks in the way they are paying their directors financial bonuses that are swelling their normal fixed salaries.
According to AFP, in a written communication to the European Banking Authority (EBA) last week, the Commissioner explained that this practice is observed in countries like the United Kingdom, which allows financial institutions to exempt key personnel and is described “by the press as a means of circumventing European rules”. Barnier is calling for a swift European-level coordinated response to tackle this issue.
The EBA will soon present the conclusions of its assessment of “specialisation bonuses” considered as fixed amounts added to basic salary, whilst making discretionary payments to selected personnel for a limited period (see EUROPE 11101). A number of criteria will be based on this analysis, which will help work out whether this emerging practice can be described as the fixed or variable part of the salary for banking executives. The objective is to prevent the recently introduced ceiling between fixed and variable salary elements from being circumvented.
A threshold for the variable part of banking and investment company executives was introduced in 2014 (see EUROPE 10812). A bonus should not be above the fixed part of the annual salary (ratio 1: 1). If a majority of shareholders gives the go-ahead, this bonus could double the salary received (ratio 2: 1). The EU also established standards for introducing banking bonus limits (see EUROPE 11031). Among the fifteen or so qualitative and quantitative criteria, a threshold has been set at €500,000 a year for the total salary received, beyond which the beneficiary is considered to be having an impact on the risk profile of the financial undertaking of the company employing him and is therefore subject to new European rules on bonuses.
The matter has been taken up by the European Court of Justice. The United Kingdom never accepted any restrictions on bonuses and took the matter to the European Court of Justice. An initial plea was presented on Monday 8 September in Luxembourg. In a press release, Philippe Lamberts (Greens/EFA, Belgium) stated: “we are hopeful that the EU's justice system confirms the legality of this major step for economic justice. The decision to curb the excessive bonuses paid to bankers has meant that the EU has finally, if belatedly, responded to public interest demand regarding the sometimes obscene levels of bankers' remuneration. It is also a crucial measure for removing the incentives for reckless risk-taking in the financial sector”. The copresident of the Greens/EFA waged a war last year against banking bonuses at the European Parliament, during the adoption of the “CRD IV” legislative package. (MB)