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France is now backing the parliament’s demand for strict limits on bonuses that exceed salary, and a clear majority – which now crucially includes Germany – want to compromise so the bonus dispute does not hold up reforms of bank capital rules.
British officials are scrambling to secure revisions to the tentative compromise, which imposes a 1:1 bonus to salary ratio, which can be raised to 2:1 with the backing of a supermajority of shareholders. In a sign of how far the debate has moved, Britain circulated an informal position paper on Friday suggesting alternative reforms that “build on the principle of a cap” while removing elements that would backfire.
Other proposed adjustments have more promise, such as exempting EU-based banks from applying the rules to their offshoots outside Europe and incentivising the use of bail-in bonds. As it stands, the curbs apply to all banks operating in Europe and their international subsidiaries and branches.
The eight-page UK paper argues that the parliament’s fixed ratio will encourage “large cash fixed salaries”, undermine financial stability and weaken existing clawback rules, which banks are beginning to enforce. London’s ratio can be set at any level and excludes “long-term” remuneration; the form of the pay must track the bank’s health, such as equity or bonds that are wiped out when a bank fails.
EU ministers have studiously avoided discussing remuneration in public. But the private diplomacy has been more active. George Osborne, UK chancellor, repeatedly discussed the issue with Wolfgang Schäuble, Germany’s finance minister, including in recent weeks. While Berlin last summer floated alternative, less onerous remuneration reforms, it no longer has the appetite for a long fight with parliament given the urgent need to agree the capital reforms.
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