The gravy train is over.
Bloomberg reports that bankers in the European Union, who already have the toughest bonus curbs in the Group of 20 nations, may face even stricter pay limits under a draft deal to bolster lenders’ capital requirements and rewrite the bloc’s financial industry rulebook.
European Parliament lawmakers and national government officials agreed to ban bonuses that are worth more than twice bankers’ fixed pay, in a tentative deal that may end more than 18 months of wrangling over how the EU will apply global bank rules drawn up by the Basel Committee on Banking Supervision.
'I find it difficult to imagine that we would now scrap this compromise', Michel Barnier, the EU’s financial services chief, said following the marathon negotiating session that ended soon after midnight in Brussels. Thursday’s deal would have to be formally endorsed by governments and lawmakers, he said.
EU Legislators demanded that the law implementing the so-called Basel III pact include curbs on variable pay as part of a quest to reshape lenders as utilities rather than money-making machines. The bonus restrictions comes as some of Europe’s largest banks take steps to reduce variable pay awards in response to trading scandals or dips in performance.
'The EU is taking the toughest approach of any major market to date on banker pay', Karen Shaw Petrou, managing partner of Washington-based Federal Financial Analytics Inc., said in an e-mail. 'Banks may be getting a lot of regulatory leeway, but bankers will pay for it in their compensation packets', she said.
One banker told Here Is The City: 'As usual, it's the little people who will suffer. The Billy Big Bonuses of ths world will simply relocate to the U.S or Asia-Pac. Another example of the EU driving talent away (reducing their tax take) - and banks won't be any safer as a result'.
Andre Spicer, Professor of Organisational Behaviour at Cass Business School, said: 'The new EU curbs on bankers’ bonuses will force banks to rethink how they motivate their star performers. For some time banks have relied on super-sized bonuses to attract and retain star performers....
'Some of the alternatives to large bonuses will include longer term incentives which are linked to performance of the institution over five or 10 years. It might include soft incentives such as better working hours, more supportive work environments, more opportunities for self-actualisation and more interesting design of jobs. This could lead to workplaces where bankers are no longer willing to put up with 364 days of stressful work and one good day when bonuses are paid. This will mean banking is likely to be a more attractive job for a wider range of people.
'The cap on bonuses will also mean that banks need to rethink their business models. Until now banks have relied on a few stars in small units of investment banking to make significant chunks of the bank’s profit. Now banks will need to think about ways of harnessing the talent of the vast majority of their employees who don't receive giant bonuses. This could see the large banks returning to older style banking.
'But it could also see star performers moving to smaller financial institutions outside the banks, such as private equity or hedge funds'.
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