EU plans to cap bankers’ bonuses from 2014

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European Union officials have agreed plans to cap bankers’ bonuses as part of reforms designed to help the banking industry withstand any future financial turmoil.

The deal will see bankers’ bonuses capped at one year’s salary, or at two years’ salary with shareholders’ explicit approval.

The UK, which hosts Europe’s largest financial sector, has always been opposed to the cap, which still needs to be approved by member states.

Robin Chater, secretary-general of the Federation of European Employers, said the cap will simply lead to larger basic salaries to encourage employment: “Financial institutions would remain free to increase base salaries to reward and retain key staff.

“What politicians and bureaucrats have always ignored is that high remuneration levels in the financial sector – and especially substantial variable payments – serve to minimise fraud levels, retain talent, drive high performance and encourage continuity of employment.”

Jon Terry, remuneration partner at PricewaterhouseCoopers, agreed: “Salaries are almost certain to rise substantially, leaving banks with less flexibility to reduce or claw back bonuses when needed.”

Michael Noonan, minister for finance in Ireland, which holds the current EU presidency, said: “During the financial crisis, European taxpayers had to recapitalise the banks. The overhaul of EU banking rules will make sure that banks in the future have enough capital, both in terms of quality and quantity, to withstand shocks.”

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