European banks say the bonus cap is actually helping them recruit staff

After all the braying about cutting bonuses being bad, it turns out many bankers quite like fixed pay.

by Rachel Savage
Last Updated: 07 Oct 2014

Bankers are known for skating around rules by creating financial instruments so complicated that nobody actually understands them, so it’s no surprise many have come up with a potential way to get around the EU bonus cap. What may surprise people is that banks are now using the cap as a recruitment tool.

Banks including Barclays, HSBC, Lloyds, Deutsche Bank and Goldman Sachs are paying out ‘role-based allowances’, which are counted as fixed rather than variable, according to the FT. The allowances can’t be moved up or down each year and aren’t pensionable.

The cap, which limits bonuses to 100% of fixed pay or 200% with shareholder approval, applies to anyone earning more than €1m (£830,000) unless the European Banking Authority allows an exemption. The EBA estimated there were 2,714 earning more than €1m in the UK in 2012, a pretty staggering number compared to only 212 in Germany (the next biggest home for bankers), 177 in France and a mere one in Greece.

The ten EU countries with the most bankers earning more than €1m

Austria

19

Sweden

20

Norway

23

Netherlands

27

Denmark

48

Spain

100

Italy

109

France

177

Germany

212

UK

2714

Bankers earning over €500,000 will also be ensnared if they’re ‘material risk takers’: in the top 0.3% of a banks earners, earning a bonus that’s more than 75% of their fixed salary, or earning at least as much as senior management or other ‘risk takers’.

Allowances aren’t yet a cut-and-dry way to get around the bonus cap: the EBA could investigate the practice and order it stopped. However, intriguingly, after all banks’ loud, persistent moaning that the cap will make it harder to keep talent, many European bankers told the FT it’s actually helping recruitment in Asia and the US as it strips out pay uncertainty.

Some bankers even told the newspaper they were disappointed not to be covered by the cap. Financiers may not be so wedded to cut throat Wolf of Wall Street-style competition as popular parody would have us believe.

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