EU to cap bankers’ bonuses to one year’s pay – 19/03/13
Under the “Basel III rules” which is a financial reform package introducing higher capital requirements for banks, the EU have proposed to cap bankers’ annual bonuses to one year’s salary. Bonuses of up to twice the annual salary would have to be authorised by holders of a half of a bank’s shares. This would require votes of at least 65% of shareholders owning half the shares represented, or 75% of votes if there is no quorum. If a bank issues a bonus beyond the level of a banker’s annual salary then a quarter of the whole bonus must be deferred for at least five years.
This new cap is expected to be incorporated into UK national law by 1 January 2014. Both David Cameron and Boris Johnson have joined forces criticising this plan fearing that it would stifle Britain’s role as a global banking centre. Chancellor George Brown has also criticised it and will also try to block the plans, claiming it would prevent City firms hiring the best staff, prompting an exodus of top talent to New York.
Daniel Cheung, a partner at Maxwell Alves Solicitors, said: “In economic terms, it is arguable this handicap will make the UK less competitive in the global marketplace. On a legal front, the European Commission may have exceeded their EU powers as Article 153(5) TFEU states that EU legislative powers shall not apply to pay and a possible action under Article 340 TFEU may ensue. In employment law terms, further redundancies and downsizing may follow if the UK becomes less competitive. On a practical point, the income and bonuses from the UK financial industry forms a large part of total UK tax receipts and making up this deficit may be a further problem”.