Newspaper article International New York Times

In London, Banks Skirt E.U. Law on Bonus Limits ; Pay Packages Rearranged to Keep Both Regulators and Employees Happy

Newspaper article International New York Times

In London, Banks Skirt E.U. Law on Bonus Limits ; Pay Packages Rearranged to Keep Both Regulators and Employees Happy

Article excerpt

Bank giants are structuring new pay packages that try to satisfy both their emboldened regulators and their very expensive employees.

A battle over banker bonuses is building in this financial capital.

Since the 2008 financial crisis, regulators around the world have tried to rein in bonuses, worried that big payouts encourage excessive risk-taking by bankers and traders. The European Union has gone further than most, limiting bankers to bonuses equal to one or two times their salaries.

But the bank giants operating in London -- including Goldman Sachs, Bank of America Merrill Lynch and Barclays -- are seeking to outflank the new restrictions. Responding to the law, they are structuring new pay packages that try to satisfy both their emboldened regulators and their very expensive employees.

So goodbye, big bonus.

Hello, role-based pay.

Other banks have called their new payments "allowances." At least one labeled it "reviewable salary."

One of the European lawmakers who led the push for bonus caps is not buying the semantic somersaults.

"These are bonuses in disguise," said Philippe Lamberts, a Belgian member of the Green Party in the European Parliament. "I wonder how they will hold up in a court of law."

The banks are nonetheless pressing on with the changes, with the goal of making sure their top talent in Europe gets paid.

Yet as the banks tie themselves in knots to comply with the bonus cap law, the new pay packages may undermine what bank regulators worldwide have sought to do for nearly six years: force banks to stagger the payment of bonuses over much longer periods. Such deferrals, as they are known on Wall Street, enable the money to be taken back if bets go bad.

"This may leave us not just no better off, but worse off from the management of systemic risk," said Andrew Tyrie, the chairman of the Treasury Select Committee and a Conservative member of Parliament. The commission on banking standards that he led concluded, among other issues, that compensation needed to include longer deferrals and more take-backs to discourage excessive risk-taking.

But the new structures -- which do not entirely replace bonuses - - pay more upfront and leave less available to take back.

"It doesn't chime well with what regulators are asking banks to do," said Jon Terry, head of the global financial services human resources leader at the London office of PricewaterhouseCoopers, which is working with many of the leading banks.

Bank executives and many leading political figures in Britain say that the bonus-cap law, which applies to European banks and the European operations of global banks, will drive up their fixed costs of compensation by requiring them to pay more in annual salary.

It also creates an unfair playing field, they say, noting that bankers and traders in New York, Hong Kong or Singapore face no such constraints.

"It makes London less competitive against the U.S. and Singapore and anywhere outside the E.U.," said Stephen Brooks of the PA Consulting Group in London. "That's a disadvantage to the E.U."

For the moment, the banks in London have an ally in the British government, which is suing to block the law, saying that the European Commission has overstepped its authority. (Banker compensation is important to the British government, which gets 60 cents of every bonus dollar in the form of taxes and national insurance, according to Mr. Brooks.)

And British regulators so far seem comfortable with the new pay structures, with banks including Barclays and Goldman Sachs indicating in memos to employees and internal conversations that they have conferred with their regulator on the pay packages.

The 2013 European law limits certain bankers to bonuses equal to one times their salary, or two times if shareholders approve it. It defines what is considered fixed pay and what is variable pay, more commonly known as bonuses. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.