Bankers May Get 25% of Bonuses in Immediate Cash Payouts Under EU Proposal

Bankers may get a quarter of their bonuses in immediate monetary payouts under rules proposed by European Union regulators, which would allow as much as half of overall awards to be paid in cash rather than shares.

At least half of each segment of the bonus must be deferred for three years or longer, the Committee of European Banking Supervisors said in an e-mailed statement today. CEBS held a meeting of supervisors from the 27 EU member states in London.

The EU is implementing rules on bonuses as part of a range of measures to rein in the risk taking blamed for causing the worst financial crisis since the Great Depression. Some national regulators, including the U.K. Financial Services Authority, had sought to interpret EU rules in a way that would allow cash bonuses of as much as half the overall award.

“The CEBS guidance makes the European regulation of banking pay among the most stringent,”Jon Terry, partner at PricewaterhouseCoopers in London, said in an e-mailed statement. “This will be a huge disappointment to the European banking industry.”

The “most senior staff” may have to keep shares given as part of their bonus for an additional length of time beyond the deferral period, CEBS said in today’s report. Banks were given until Nov. 8 to respond to the plan.

“We must not move away from clear commitments made” in laws agreed to by the European Parliament and member states earlier this year, Chantal Hughes, spokeswoman for the European Commission, said in an e-mailed statement.

Global Level

Workers at subsidiaries of European banks outside of the region will also be subject to the bonus rules. Staff “will not be able to bypass the remuneration requirements by becoming employees of an offshore or non-regulated entity of the group while still performing services and duties for EU-based institutions,” CEBS said.

Without an agreement on bonuses at a global level “the result will be significant difficulties for businesses in Europe and for the many hundreds of thousands of jobs that depend on the financial services industry,” Angela Knight, chief executive of the British Bankers’ Association, said in an e- mailed statement.

“We need to look across the Atlantic to the U.S., and east toward Asia, to ensure changes are imposed sensibly everywhere,” Knight said.

U.K. Banks

Britain’s five biggest banks including Barclays Plc and HSBC Holdings Plc, agreed in September 2009 to adopt a program to introduce certain restrictions on bonuses proposed by the Group of 20 nations. As much as 60 percent of such compensation is deferred over three years, with at least half paid in shares, under the agreement.

“It is time to fundamentally change the bonus culture that contributed to this crisis,” Arlene McCarthy, a U.K. member of the European Parliament who sponsored the bonus rules, said in an e-mailed statement.

The U.K. FSA has proposed expanding the firms covered by its rules on bonuses from 27 banks to 2,500 firms including building societies and hedge funds, and will hold meetings with fund managers to determine how to make sure the national limits are in line with the EU measures.

CEBS’s recommendations may apply to fewer hedge-fund managers than previously thought, PwC’s Terry said, making the FSA’s plans “reasonably manageable.”

To reduce the compensation that promotes excessive risk taking, regulators can either “increase the downside risk for bankers or limit the upside,” Sony Kapoor, managing director of policy research center Redefine Europe, said in an e-mailed statement. “Since we are not about to start hanging bankers again, the only realistic option is to cap bonuses.”

To contact the reporter on this story: Ben Moshinsky in Brussels at bmoshinsky@bloomberg.net;

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net.