As ever, last week’s discussions on the European Union’s proposed changes to banking bonus rules failed to produce anything conclusive. This was the 33rd such ‘trialogue’ on the subject according to Sven Giegold, a German Member of the European Parliament (MEP) who has participated in the talks. None of the previous trialogues came to anything. Maybe it was unreasonable to think last week’s would.
The matter has not gone away, however. A spokesperson for one UK MEP told us yet another trialogue is scheduled for tomorrow. In the meantime, Giegold said the UK’s chances of stopping the European Union imposing its cap on bonuses at 100% of salaries (200% with the approval of two thirds of shareholders) is close to zero. The UK lacks the support needed to gain a qualified majority in the European Council, he said.
Giegold, a 43-year-old MEP who is the economic policy spokesman for the German Green party in Europe, has been vocal about the need to restrain banks and bankers. He said the former are dangerous and the latter are unfairly rewarded.
Bankers make money from the intelligent use of, “information asymmetries,” Giegold told us. “In finance you get a high income, even if your performance was mediocre or worse,” he added. Giegold contrasted bankers to footballers, whose pay he said is acceptable and genuinely performance-related: “If you're a football player, you get a lot of money because you are playing good football."
While Giegold said the UK’s attempts to dilute the EU’s bonus rule may fail, evidence of the UK government’s increasingly desperate behind-the-scenes machinations has come to light.
Last week, the UK circulated a ‘non-paper’ suggesting compromises that would make the EU bonus rules more palatable to the City. UK MEPs say the paper was produced by the Treasury, which did not respond to a request for comment. You can see a copy of this paper, including various crossings out and amendments, if you click the following link: CRD4 Alternative Proposal on Remuneration 4 (3).
Among other things, the UK's negotiating paper suggests that:
- A bonus cap should still be introduced, with majority shareholder approval, but the cap should not be hard and the EU should not set the limits. If this were accepted, shareholders could vote to cap bonuses at five times salaries, which would be far less punitive.
- There should be an absolute cap, but only on upfront cash bonuses. This would be stricter than currently proposed by the EU, which has avoided talk of absolute caps, but would apply only to the cash element of bonuses - leaving banks to pay as much as they want in deferred stock.
- Variable remuneration should be defined only as remuneration paid over a three year period. If this were accepted by the EU, banks would be free to pay as much as they want in bonuses deferred for three years or longer.
- Subsidiaries of non-EU banks should be exempt from the cap. The UK suggests it would be impractical for branches of US banks, for example, to vote on a local EU bonus cap. Instead, these banks should be governed by global remuneration requirements. If this were accepted by the EU, US banks operating in the City of London would be spared the bonus cap. The UK also requests that subsidiaries of EU banks should not have to apply the cap outside the EU, which would leave Barclays (for example) free to pay high bonuses on Wall Street.
Insiders tell us there have been various amendments to the UK's negotiating paper since it was written last week. Deletions in the version we've linked to above suggest the UK negotiating team has been frantically altering its position. Initially, the UK proposed that two thirds of shareholders should be compelled to vote on bonuses as a proportion of salaries; this was later reduced to 50%. The UK also appears to have toyed with suggesting that 60% of bonuses above €200k should be deferred (current policy being that 60% of bonuses for registered staff should be deferred), but crossed this out in favour of "particularly high" bonuses being mandatorily deferred instead.