Bankers avoid EU bonus rules; UK maintains negative stance on caps

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New research shows bankers are using ‘sneaky’ measures to circumnavigate the European Union’s new cap determining bonus sizes.

Designed to come into effect later this year, the cap will limit bonuses to no more than each banker’s yearly salary.

Yet think tank the High Pay Centre has predicted bankers will enjoy another year of massive bonuses whilst the rest of the workforce faces stagnating wages, as banks prepare bonuses for 2013.

Avoidance measures

Two of the most common ways banks have been and will continue avoiding the cap is to either raise the basic salaries of their staff, thus increasing both bonuses and yearly takeaway, and role-based paying systems.

The latter allows a bank to pay senior level staff based on their job role, and not on themselves, meaning it avoids the bonus payment cap imposed by the EU.

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In addition, The Guardian reports that Britain’s biggest bank, HSBC, will be rewarding bankers with shares to bypass the cap.

2008 financial crisis

The bonus culture in the world’s banks has been blamed as the cause of the 2008 financial crisis – as it prompted excessive risk taking amongst the EU’s bankers.

The UK was the only country to vote against the plan, and the UK Treasury is now preparing a challenge to the EU.

In 2013, the Treasury stated its belief the new EU bonus system would only increase annual salaries – rather than ensure a more level playing field of pay – and the competitive work culture would remain.

‘Sneaky’

Whilst the British Bankers Association has said bonuses now rewarded long-term decision making and were “smaller,” the High Pay Centre insists the culture of bonuses is “sneaky” and risks draining power from the economy.

Spokeswoman Deborah Hargreaves stated: “We saw fat-cat Wednesday last week, where top bosses on an average of GBP 4.3 million a year had already taken home as much as average earnings in two and a half days this year.”

Hargreaves furthered that a system whereby a small percentage of people at the top of the chain are overpaid whilst the rest of the workforce struggles is “wrong.”

American life

Research from the Office for National Statistics shows that in 2013 annual bank bonuses stood at GBP 14 billion last year – a large decrease from the pre-financial crisis peak of GBP 19 billion.

Yet in America, during the first nine months of last year, the big American banks set aside around GBP 40 billion in bonuses.

Analysts predict Goldman Sachs and Morgan Stanley will pour in another GBP 4 billion when they report their results later this week.

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