Banks try to dodge bonus ceilings

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.

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.”

The UK has 1 300 so-called code staff, who have received Financial Services Authority approval and would be affected by the cap as it stands, Andrew Bailey, Britain’s top bank supervisor, said on March 13.

According to “back of the envelope” calculations, employees may get as much as US$756 million more in base pay to offset the limit, he said.
Banks are also under pressure from UK lawmakers to limit their proprietary trading activities as well as European plans for a financial transactions tax.

That tax could add £3,95 billion to the cost of issuing UK government debt, according to a report commissioned by the City of London Corporation yesterday.
“Raising base pay at the expense of bonuses may backfire as firms will still have to pay salaries when revenue declines”, Sjostrom said. It may even encourage risk-taking, he added.

“If you are sitting pretty with a nice fixed income of a million, it’s not so scary to gamble,” he said. “There’s an argument we will have a harder time applying clawbacks and other risk preventing measures because it will be forced onto the fixed part of compensation.”

Officials at the EBA declined to comment, as did officials at Barclays Plc, HSBC Holdings Plc, Royal Bank of Scotland Group Plc, Lloyds Banking Group Plc and Standard Chartered Plc, Britain’s five largest lenders by market value. — Bloomberg.