EU acts to cap bankers' bonuses

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EU acts to cap bankers' bonuses

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In a world first, the European Union has agreed to cap extravagant bankers’ bonuses from 2014.

The provisional deal means that bonuses will be capped at one year’s salary, unless a majority of shareholders vote to increase it to two years. It would also apply to bankers employed by an EU-based institution living outside the union.

The decision was made to address public anger at bonuses being paid out to bankers at the centre of the financial crisis and whose compabies had to be bailed out from the public purse.

The deal is part of a wider set of legislation to avoid a repeat of the economic crash. The rules would ensure that banks create cash buffers to cover the risk of unpaid loans.

Banking experts say the new rules on bonuses will have little effect, as the decision will merely drive up basic salaries.

“It could result in significantly more complex pay structures within banks as they try to fall outside the restrictions to remain competitive globally,” said Alex Beidas, a pay specialist at law firm Linklaters.

This is a setback for the UK government which had hoped to defend the financial sector in London. It argued that the bankers in the City would be driven out of the EU to places where regulations are more lax.

The EU is hoping the action to curb pay will set a precedent for the rest of the world.