EU Bonus Crackdown

Banker’s bonuses are set to face the biggest crackdown from the European Union since the financial crisis in 2008.  The European Union are considering banning upfront cash bonuses that are greater than annual salaries, therefore holding banks to a 1:1 bonus to salary ratio. There is a possibility of this ratio being raised to 2:1 under the support of the majority of shareholders, i.e. if three quarters of a bank's shareholders agree. This new scheme is part of a plan to implement the new Basel III rules aimed at improving the stability of the financial sector in order to avoid a repeat of the recent financial crisis.

Banks were preparing themselves for a fixed cap on bonuses so these new proposals come as a shock to the system for them. The industry was relying on the UK and Germany to put pressure on to reduce the limits being imposed on bonuses. However, many countries, including Germany, are now backing these new plans in an attempt to avoid any disruption to the implementation of the new Basel III rules, much to the UK’s dismay.

British officials are said to be desperate to obtain adjustments to these new proposals, suggesting alternatives which will remove elements that they fear might backfire.  British officials believe that that these new EU proposals for a fixed bonus to salary ratio will only encourage banks to increase their already large fixed cash salaries. British officials added:

"We’ve always been in favour of a rigorous regime, but we need to make sure any reforms don’t create unintentional incentives that actually achieve the reverse of what is intended."