EU set to impose caps on bankers’ bonuses

The European parliament and EU states could agree today to impose caps on bankers’ bonuses, a measure that would channel public fury at financial sector greed, but which opponents say marks a reckless overreach by Brussels into private pay deals.

Negotiations to introduce a cap on bankers’ bonuses in the European Union resume on Wednesday, a week after European lawmakers and ambassadors from countries failed to reach a deal. A majority of states in the 27-member bloc would have to support a measure passed by the European parliament to make it law. Limits to bankers’ pay are popular on a continent still struggling to emerge from the ruins of a 2008 financial crisis. Lavish pay is blamed for encouraging bankers to take excessive risks, destabilizing banks that then needed to be bailed out.

Banks and industry lobbyists have strongly resisted bonus caps. They say such limits would only force banks to hike base pay to keep staff, making wage bills less flexible. Britain in particular is wary of any measure that might hurt the City of London, the continent’s financial capital, with 144,000 banking staff and many more in related jobs.

But European lawmakers see a cap - possibly limiting bonuses to double base salary - as the only way to rein in runaway pay, reduce incentives for risk and make banks safer. “A cap is the only way we will see bonus restraint,” said Arlene McCarthy, the British member of the European Parliament who pushed for pay reform. “The parliament is not prepared to budge. Legislators have got fed up because they don’t see any restraint in the bonus culture.”

Talks between EU country ambassadors about the rules broke up last week amid clashes over how far to go. But tougher rules seem certain. “There will definitely be a bonus cap,” said one official. “It’s just a question of how much.” A decision is not expected before 1800 GMT and there is a possibility that it might be deferred for more negotiations. Britain, anxious to protect a sector that accounts for one tenth of its economy, is trying to dilute the impact of the cap with proposals that would allow higher bonuses if they were paid in share options. Nearly 700,000 people work in financial and professional services in London.