David Martin's EU Tribune

In the European Parliament we are witnessing an ongoing backlash against high pay in the banking sector in the wake of the global financial crisis. It is the belief of a majority of MEPs, including those from the Right, that bankers’ bonuses should be strictly limited.

New proposals have been put forward by members of a key committee, the Strasbourg Parliament’s Economic and Monetary Affairs Committee. One of the committee from the centre-right European People’s Party suggesting bonuses ought to be capped at the level of fixed salaries. The committee is looking into plans for a ‘set limit’ which should be on a ‘one-to-one’ basis with regular annual pay. This proposal also has the backing of the European Commission.

Current European Union rules adopted in 2010 only limit the upfront cash element of bonuses to senior employees to one quarter of the total amount, with the rest deferred or paid in shares.

The Committee has previously suggested limiting bonuses to two-times basic annual salaries and is now proposing a draft law to implement new global capital rules for banking, known as the Basel III regulations, which are due to come into effect in January 2013.

Parliament is expected to vote on a first reading of the deal this summer. According to the Financial Times, the Commission’s Commissioner for financial regulation Michel Barnier wants MEPs to take ‘tougher action’ on bankers’ remuneration.

The proposals on curbing bankers’ pay came as the European Banking Authority (EBA) published a report noting that banks’ alignment of risks and rewards, a core issue raised in the wake of the financial crisis, remains underdeveloped.

The remuneration policies currently used do not appear to signal a breach with practices from the past and tend to be high. It added that the criteria used by banks to determine the sizes of bonuses were not always clear. The report said the scope of the current guidelines was an area of significant concern and considerable variations existed in the application of the requirements.

The study found that the median average ratio of bonus to salary across the EU was 122 per cent at executive level and 139 per cent for other staff identified as risk takers.

However, the maximum ratio of bonus to salary reported in one institution was 429 per cent for executives and 940 per cent for others, while in one EU country, the respective average ratios were 220 per cent and 313 per cent.

This is totally unacceptable and an insult to European Union (EU) citizens who are undergoing hardship due to austerity policies imposed on them which are making them pay for banker’s mistakes in the recent past.