First it should be
noted that most bank executives, whose bonuses are typically 30 percent
of their salaries, are unlikely to be impacted by the EU pay cap. It is
true that senior management and investment bankers can make as much as ten times their annual salary in bonuses.
Analysts have estimated that some 5,000 bank executives in London,
Europe's financial capital, could be affected by the regulation.
Just this morning Barclay bank, one of the "big four" in the UK, released its annual report showing that five staff were paid more than -5 million ($7.5 million) in 2012 and 428 staff made over than -1 million or $1.5 million. (It should be noted that half its 140,000 staff earned less than -25,000 or $37,500)
Second, banks are already looking for ways to circumvent the new rules which will take effect in January 2014, say UK observers. George Osborne, the UK finance minister and a member of the Conservative party, argued that the pay restriction would have a "perverse" effect.
"It will push salaries up, it will make it more difficult to claw back bankers' bonuses when things go wrong, it will make it more difficult to ensure that the banks and the bankers pay when there are mistakes, rather than the taxpayer," he said. (Osborne stood alone in opposing the legislation against the other 26 EU states)
His opinion was echoed by more politically liberal
commentators. "(T)he bonus cap is the point where good intentions lose
touch with experience," writes Nils Pratley, the Guardian's financial
editor. "Did the parliamentarians not notice how Goldman Sachs UK, for
example, wanted to defer its bonus payments this year to April to dodge
the 50p rate of income tax? That's how banks behave: they will exploit any change in the rules."
EU commissioner Barnier, however, has been emboldened by the vote. He told Reuters that he was currently drafting legislation that would give European shareholders a mandatory say on compensation. "I am in favor of making shareholders more responsible on pay," Barnier said.
But empowering shareholders may not be enough to rein in corporate pay, if U.S. precedent is anything to go by. In 2010, the U.S. passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, otherwise known as the "Say on Pay" Act, which required public companies to allow shareholders to vote on executive pay at least once every six years. Such votes are advisory only and non-binding, meaning that corporations can do whatever they please, although they tend to obey investor votes.
Unfortunately in the years since Dodd-Frank passed, investors have overwhelmingly agreed to approve executive pay packages, according to a recent report conducted by financial consulting group, Semler Brossy: Out of 2,215 companies surveyed in 2012, only 2.6 percent of those reported that shareholders had voted against proposed executive compensation packages.
Indeed, median pay of the 200 highest paid CEOs in the U.S. in 2011 was $14.5 million, according to a study by Equilar, a compensation data firm, with an average pay raise of 5 percent.
"You call this a revolution?," wrote Nathaniel Popper in the New York Times. "Yes, some corporate boards seem to be listening to shareholders. But rewards at the top are still rich -- and getting richer."
Just this morning Barclay bank, one of the "big four" in the UK, released its annual report showing that five staff were paid more than -5 million ($7.5 million) in 2012 and 428 staff made over than -1 million or $1.5 million. (It should be noted that half its 140,000 staff earned less than -25,000 or $37,500)
Second, banks are already looking for ways to circumvent the new rules which will take effect in January 2014, say UK observers. George Osborne, the UK finance minister and a member of the Conservative party, argued that the pay restriction would have a "perverse" effect.
"It will push salaries up, it will make it more difficult to claw back bankers' bonuses when things go wrong, it will make it more difficult to ensure that the banks and the bankers pay when there are mistakes, rather than the taxpayer," he said. (Osborne stood alone in opposing the legislation against the other 26 EU states)
EU commissioner Barnier, however, has been emboldened by the vote. He told Reuters that he was currently drafting legislation that would give European shareholders a mandatory say on compensation. "I am in favor of making shareholders more responsible on pay," Barnier said.
But empowering shareholders may not be enough to rein in corporate pay, if U.S. precedent is anything to go by. In 2010, the U.S. passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, otherwise known as the "Say on Pay" Act, which required public companies to allow shareholders to vote on executive pay at least once every six years. Such votes are advisory only and non-binding, meaning that corporations can do whatever they please, although they tend to obey investor votes.
Unfortunately in the years since Dodd-Frank passed, investors have overwhelmingly agreed to approve executive pay packages, according to a recent report conducted by financial consulting group, Semler Brossy: Out of 2,215 companies surveyed in 2012, only 2.6 percent of those reported that shareholders had voted against proposed executive compensation packages.
Indeed, median pay of the 200 highest paid CEOs in the U.S. in 2011 was $14.5 million, according to a study by Equilar, a compensation data firm, with an average pay raise of 5 percent.
"You call this a revolution?," wrote Nathaniel Popper in the New York Times. "Yes, some corporate boards seem to be listening to shareholders. But rewards at the top are still rich -- and getting richer."
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