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Barnier warns on further bonus reforms

Tuesday 31 January 2012 – by Andrew Hickley

Michel Barnier - photo by European Commission

Internal market commissioner Michel Barnier has warned that Europe’s banking industry will face more reforms if banks continue to pay bonuses that go “against morality”.

Stepping up his attack on the bonus culture, Barnier said that the European Commission “will not hesitate” to enact stricter legislation if banks continue to pay excessive bonuses.

Alongside a measure imposing a numerical ratio between the fixed and variable part of the remuneration – which he mooted in a speech in London last week – the commissioner said he would consider introducing a maximum multiple between a firm’s highest and lowest-paid salaries.

“These two ideas are, at this stage, examples that should, of course, be further examined for their feasibility,” Barnier said, speaking in the European Parliament on Monday.

“In the current economic climate, it is simply unacceptable for banks to continue paying out ridiculously high bonuses to their staff seeing that the financial sector was rescued using public money and that all our citizens are now burdened with this.”

He also said that the role of shareholders could be strengthened by allowing them a binding vote on banks’ executive compensation at their annual general meetings.

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The measure, which was mooted in a green paper released in April 2011, could apply to all listed companies in the EU, he added.

Europe has introduced a series of requirements in an effort to clamp down on the bonus culture, which has been blamed for rewarding excessive risk-taking in the build-up to the financial crisis.

Banks in the EU are now forced to cap the proportion of their bonuses that are paid out in cash and stocks, while pay is usually deferred over a five-year period.

Additionally, bonuses that could damage a bank’s funding base can be banned by regulators, while the European Banking Authority has warned banks that are unable to meet temporary capital requirements that they are expected to retain profits instead of rewarding employees.

But Barnier noted that despite calls for banks to exercise “the utmost restraint” when issuing bonuses, “the situation is still far from satisfactory”.

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