July 21, 2011 / 2:02 PM / 9 years ago

REFILE-EU banks head for fresh fight over bonus rules

(Fixes spelling of Wilson in second mention, paragraph 13 and fixes date)

* EBA tasked by EU with looking at fixed/variable pay ratios

* A set ratio seen as unlikely, but adds to bonus scrutiny

By Sarah White

LONDON, July 21 (Reuters) - Europe’s banks are facing another tussle over pay levels as regulators seek to limit the size of bonuses, still the target of public anger despite curbs brought in this year.

The European Banking Authority is to study how banks should balance the level of bonuses versus salaries, reviving the spectre of an imposed ratio — an idea successfully quashed in the past after fierce lobbying by banks.

“It’s not a panic, but a deep sigh (for the banks) that this is coming back,” said Tom Gosling, a partner at consultants PricewaterhouseCoopers. “The fact that this specific issue has been highlighted shows there is a sense of unfinished business around pay.”

The EBA was on Wednesday tasked by the EU to look into pay ratios as part of draft laws on capital and liquidity. It has until the end of 2013 to explore the issue.

A new bonus regime in the European Union that forces banks to give out large chunks of awards in stock and defer payments is already stricter than in the United States and Asia.

A prescriptive ratio between fixed and variable pay would make the scale of bonuses more transparent but limit banks’ flexibility around pay, which critics of the greater regulation say can result in more job cuts.

It would also be a tough measure to introduce across European Union countries operating different banking systems.

“It’s an impossible dream to impose a percentage-based remuneration structure that is common across 27 member states,” said Graham Paul, an employment partner at law firm Dundas & Wilson. “The idea rears its head now and again, as (regulators) have got to be seen to explore it.”

The EBA’s mandate — to draft technical standards and criteria used to determine “appropriate” ratios between fixed and variable pay — allows for some leeway on how draconian the proposals will be, so could result in vague guidelines on the criteria to be followed.


Even a need for vague guidance is likely to be fought by banks, which say a side-effect of the crackdown on variable pay has been higher base salaries, creating a large fixed cost base that is less flexible during downturns than one-off bonuses.

Analysts have said this was as a contributor to a recent wave of job cuts.

The draft laws unveiled this week will also force banks to disclose their own rationale for bonus payments.

British banks may have to provide these disclosures by next year to their domestic regulator, Paul at Dundas & Wilson said. They have already started revealing more detail on pay than before the crisis, including the pay of their five top earners.

The disclosures have stoked anger over the high level of bankers’ pay, especially at banks bailed out by taxpayers during the financial crisis.

Despite a pact with politicians to rein in pay earlier this year, bonuses in the UK’s financial and insurance sectors for the year to the end of March totalled 14 billion pounds, unchanged from a year earlier. (Reporting by Sarah White; editing by David Cowell)

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