10/01/2014
Major banks have devised additional payments to be paid alongside salaries to bolster pay deals and circumvent EU bonus cap.
Banks handing staff “allowances” to circumvent Brussels’
bonus cap face close scrutiny of their pay deals as a result of new
guidelines being drawn up by Europe’s top banking regulator.
The European Banking Authority is in the final stages of producing guidance intended to unify the array of practices that banks subject to the bonus cap have employed to avoid having to cut the pay of their key staff.
Under a rule which is still being fought by the chancellor, George Osborne, the EU has banned banks from paying bonuses worth more than a banker’s salary, unless shareholders give approval for bonuses of twice the amount.
As a result, major banks have devised a series of additional payments – which have become known as allowances – which are paid alongside salaries to bolster pay deals.
HSBC was one of the first banks to go public with its plans, handing its chief executive Stuart Gulliver £1.7m a year in additional payments. He receives an allowance every three months in shares. Barclays describes similar payments as “role-based pay”.
The EBA has been reviewing such practices since June and this week circulated draft proposals for consultation on what characteristics such allowances needed to have to be regarded as fixed pay – which is not capped – rather than bonuses, which are.
According to the Financial Times, an allowance would need to be based on an individual’s role rather than have any link to performance, and would need to be paid for a set period. Banks should not be able to claw back any of the allowances paid if losses are made and the allowances should be for a preset amount, and not altered at any time.
The EBA said that it had not finalised its work on allowances but said it would be “delivered in coming weeks”.
“The analysis in the report will not be a matter of being more or less conservative on allowances; the task of the EBA is to harmonise practices in the EU banking sector and this report will aim at understanding the features of allowances across the EU single market, so as to be able to make an informed choice on whether these should be classified as fixed or variable remuneration,” the EBA said.
Deputy governor of the Bank of England Andrew Bailey, among others, has warned that the bonus cap will push up bankers’ pay.
The European Banking Authority is in the final stages of producing guidance intended to unify the array of practices that banks subject to the bonus cap have employed to avoid having to cut the pay of their key staff.
Under a rule which is still being fought by the chancellor, George Osborne, the EU has banned banks from paying bonuses worth more than a banker’s salary, unless shareholders give approval for bonuses of twice the amount.
As a result, major banks have devised a series of additional payments – which have become known as allowances – which are paid alongside salaries to bolster pay deals.
HSBC was one of the first banks to go public with its plans, handing its chief executive Stuart Gulliver £1.7m a year in additional payments. He receives an allowance every three months in shares. Barclays describes similar payments as “role-based pay”.
The EBA has been reviewing such practices since June and this week circulated draft proposals for consultation on what characteristics such allowances needed to have to be regarded as fixed pay – which is not capped – rather than bonuses, which are.
According to the Financial Times, an allowance would need to be based on an individual’s role rather than have any link to performance, and would need to be paid for a set period. Banks should not be able to claw back any of the allowances paid if losses are made and the allowances should be for a preset amount, and not altered at any time.
The EBA said that it had not finalised its work on allowances but said it would be “delivered in coming weeks”.
“The analysis in the report will not be a matter of being more or less conservative on allowances; the task of the EBA is to harmonise practices in the EU banking sector and this report will aim at understanding the features of allowances across the EU single market, so as to be able to make an informed choice on whether these should be classified as fixed or variable remuneration,” the EBA said.
Deputy governor of the Bank of England Andrew Bailey, among others, has warned that the bonus cap will push up bankers’ pay.
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