Bonus Caps - Why They May Not Apply To You After All

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Most firms are now either lobbying for changes, or working on cunning schemes to get around the cap.

U.K. banks are preparing to lobby the European Union’s chief banking regulator to reduce the number of employees hit by rules capping bonuses, two people familiar with the talks said.

Bloomberg reports that the European Banking Authority will in the next 12 months decide which employees will be covered by the curbs after the EU said they would apply to risk-takers.

Banks are trying to have the rules apply to fewer workers by recommending that the definition of a risk-taker be made stricter, said the people, who declined to be identified because the talks are private.

The EU brokered a draft deal in February to outlaw banker bonuses that are more than twice fixed pay, a move lawmakers said would prevent excessive payouts and curb irresponsible risk-taking. U.K. Chancellor of the Exchequer George Osborne opposed the curbs, saying they would harm the competitiveness of the nation’s finance industry.

'Compensation alone doesn’t solve risk-taking', Carl Sjostrom, regional director for reward consulting in Europe at Hay Group in London, said by telephone. 'There’s always someone who wants to do something that might not be sensible because they want to gain a promotion, fame or fortune'.

In the meantime, The Financial Times reports that foreign banks in London are stepping up tactics to mitigate the impact of incoming EU bonus caps.

Bankers said US institutions were considering whether it still made sense to base EMEA business in London, suggesting that Dubai or another Gulf financial centre could benefit instead.

The newspaper also says that several firms have also looked at whether remuneration packages can be restructured to include elements that would give the flexibility to make up for any bonus reductions.

JPMorgan is among the banks to have considered the introduction of 'allowances' that could be increased or decreased annually, according to bank insiders.

U.K. Banks Move to Escape EU Bonus Caps by Defining Risk-Taker

US banks weigh EU bonus cap options (subscriber content)

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