EU moves closer to imposing caps on banker bonuses

Negotiations to introduce a cap on bankers' bonuses in the European Union resume on Wednesday, a week after European lawmakers and ambassadors from countries failed to reach a deal. A majority of states in the 27-member bloc would have to support a measure passed by the European parliament to make it law.

Limits to bankers' pay are popular on a continent still struggling to emerge from the ruins of a 2008 financial crisis. Lavish pay is blamed for encouraging bankers to take excessive risks, destabilizing banks that then needed to be bailed out.

Banks and industry lobbyists have strongly resisted bonus caps. They say such limits would only force banks to hike base pay to keep staff, making wage bills less flexible.

Britain in particular is wary of any measure that might hurt the City of London, the continent's financial capital, with 144,000 banking staff and many more in related jobs.

But European lawmakers see a cap — possibly limiting bonuses to double base salary — as the only way to rein in runaway pay, reduce incentives for risk and make banks safer.

“A cap is the only way we will see bonus restraint,” said Arlene McCarthy, the British member of the European Parliament who pushed for pay reform. “The parliament is not prepared to budge. Legislators have got fed up because they don't see any restraint in the bonus culture.”

Talks between EU country ambassadors about the rules broke up last week amid clashes over how far to go. But tougher rules seem certain.

Britain, anxious to protect a sector that accounts for one tenth of its economy, is trying to dilute the impact of the cap with proposals that would allow higher bonuses if they were paid in share options.

Nearly 700,000 people work in financial and professional services in London. About 27 billion pounds (US$41 billion) of bonuses have been spent over the last decade on real estate in the British capital, according to data compiled for Reuters by property firm Savills.

“If implemented, the new pay restrictions would lead to an exodus of bankers and traders to Switzerland and the Far East,” Norman Lamont, a former finance minister from Britain's ruling Conservative party, wrote in the Daily Telegraph.

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