Europe's banking watchdog has watered down its proposals on the controversial bonus cap potentially allowing an estimated 12,000 highly paid bankers to avoid the limit on their pay.
As major banks prepare to offer their highest paid staff top-up payments to skirt round the cap, the European Banking Authority has changed its definition of the group of bankers that would be subject to the plan to limit bonuses to 100% of salary from January 1.
In May the EBA had proposed that anyone earning over €500,000 (£425,000) would automatically face the restriction but on Friday removed this stipulation, angering union officials facing cuts to staff at high street banks.
Unite national officer Dominic Hook said: "People at the top of the banks get treated completely differently to people at the bottom. We need rules."
Campaigners for a tax on financial transactions urged Europe to stand firm against lobbying from the banking industry. David Hillman, Robin Hood Tax campaign spokesman, said: "Relaxing the cap on bankers' bonuses at a time when millions are still suffering the costs of the economic crisis is a step in the wrong direction."
Under the latest proposal, banks will be able to tell their domestic regulators – the Prudential Regulation Authority in the UK – that they are exempting staff earning up to €750,000 if they are not deemed to be taking or managing risks for the bank. Between €750,000 and up to €1m the banks will have to seek approval from their regulator to exempt staff from the bonus cap. Exemption for staff earning more than €1m will need explicit EBA approval.
The chancellor George Osborne has launched a legal challenge to the cap, which has prompted banks to find ways to keep offering big pay deals. Barclays, for example, is offering an additional payment - known as role based pay - which will be paid alongside salary.
Under the original plans, banks will be able to pay 200% of salary in bonus with shareholders' approval.
"These are sensible changes to the rules," said Jon Terry, a partner at accountants PricewaterhouseCoopers. "Overall we think it's likely these rules will continue to capture high earning traders. But there may be the opportunity to exclude people who don't put the firm's capital at risk, such as back-office staff, analysts, or portfolio managers in banks' asset management businesses."
Data released by the EBA last month showed the impact the cap would have on City bankers. More than 2,700 individuals in the City received more than €1m in 2012 and their average bonuses were 370% of their salaries.
Other banks may increase salaries. Andrew Stanger, partner at lawyers Mayer Brown, said that a fall in bankers hit by the cap could help avoid a rise in fixed costs, such as salaries.
But he added: "There may however be some disappointed bankers who were looking forward to a higher proportion of guaranteed remuneration, free of the uncertainties of the performance targets and forfeiture provisions commonly applied to deferred bonuses."
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