European Union agrees cap on bankers’ bonuses

The European Commission and the European Parliament have reached a preliminary agreement on limiting bonus payments in the financial services sector.

The cap will limit bankers’ bonuses to one-time salary, or two-times salary if a majority of shareholders agree. There will be some leeway for long-term incentives, although the details of this are still to be agreed by the European Banking Authority.

The preliminary agreement will be put to a vote on 21 May 2013. It will have to be approved and adopted by the EU Council and then implemented by the member states. It is expected to come into effect from 1 January 2014.

Alex Beidas, employee incentives lawyer at Linklaters, said: “This will be a significant concern for banks that will be put at a major disadvantage in the global market.

“There is a real danger that this will result in bankers moving to the United States and Asia. It is also likely to lead to an increase in salaries, which is undesirable [because] banks are trying to minimise their fixed costs.”