Politics

Debate on limiting bankers' bonuses

The EU Parliament and the Irish Presidency of the EU have failed when trying to agree on rules for the limitation of variable performance bonuses for bank managers. Still on 19 February, therefore, the final negotiations on the EU Capital Requirements Directive (CRD IV), with which the Basel III requirements are translated into European law, had be postponed till 27 February. CRD IV is the core of Europe’s policy response to the banking and debt crisis. The current debate in the EU revolves around the question of whether in the context of the ongoing revision of capital requirements for banks, capping bank managers’ bonuses by statute should be introduced. There is still controversy, however, as to the systemic risk buffer, and in connection therewith the flexibility with which national authorities may raise the capital requirements of domestic banks. In December 2012, EU Member States and Parliament agreed that the extra payments must not exceed bankers’ annual fixed salary. The Parliament, which must decide the revision together with the Council (Member States), insists on adding this basic rule. Should two thirds of the shareholders of a financial institution agree, the bonus could also rise to twice the basic salary. Ireland and especially the UK recently called the scheme into question again, however. Critics have also warned that Europe's banks could employ their top managers at subsidiaries in countries outside the EU in order to circumvent the restrictions. The controversial cap is to complement the first statutory provisions relating to the remuneration of senior management and other employees with influence on the risk position of a bank or investment firm, which were inserted at the last revision of the capital requirements in 2010 and are in force since 1 January 2011. To date the EU goes less far with remuneration for managers from the rest of the economy.