Bonus cap for bankers takes effect

New legislation to cap European bankers’ bonuses took effect from 1 January 2014.

The legislation, which was agreed in March 2013 by the European Parliament and European Commission, will apply to bonuses paid in 2015.

The law means that:

  • A salary/bonus ratio of 1:1 can be raised to 1:2 with a shareholder vote of 65%.
  • Up to 25% of the bonus can be paid in long-term instruments (deferred for five years) linked to the capital, and therefore stability, of the bank.

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The UK government attempted to stop the proposal going through in March 2013, but was overruled by European politicians.

Sharon Bowles, chair of the European Parliament’s Economic and Monetary Affairs Committee, said that the cap is intended to realign the ratio between work and reward.