After more than 30 rounds of talks, diplomats and officials in the European Union have struck a preliminary deal to place a cap on bonuses for bankers. In what would be one of the world’s strictest pay curb on financial-sector wages, the rule would limit bonuses to the equivalent of a person’s annual salary. However, shareholder approval can greenlight a ratio of up to 2:1.
The measure could have startlingly broad implications. First of all, it applies to the European branches of banks headquartered abroad—as well as to the foreign branches of European banks. It also requires banks to disclose how many of their staff are paid more than €1 million.
The news didn’t sit well with Boris Johnson, the mayor of London, who said in a statement today:
“The most this measure can hope to achieve is a boost for Zurich and Singapore and New York at the expense of a struggling EU. This is possibly the most deluded measure to come from Europe since Diocletian tried to fix the price of groceries across the Roman empire.”
That might be making things a little direr than they actually are, given that one way to limit the regulation’s impact is simply to raise base salaries (paywall).
Even so, change in the sector may already be underway. As we wrote yesterday, Barclays is already disclosing how many of its staff make more than €1 million. Plus, bankers’ bonuses in London have already fallen by more than half since 2008.
Andre Spicer, a professor at the Cass Business School in London, flagged one overlooked upside: banks will look for new incentives to keep talent, which could create a better working culture. Speaking to The Guardian, Spicer put it this way:
“Some of the alternatives…will include longer term incentives which are linked to performance of the institution over five or 10 years. It might include soft incentives such as better working hours, more supportive work environments, more opportunities for self-actualisation and more interesting design of jobs. This could lead to workplaces where bankers are no longer willing to put up with 364 days of stressful work and one good day when bonuses are paid.”
The agreement still has to be approved by EU governments and details may still be altered. However, its main points are expected to become EU law. The cap could go into effect as early as next year.