Final agreement on bankers’ bonus cap

The European Parliament and European Commission have agreed to cap bankers’ bonuses.

The move is intended to curb the banks’ bonus-driven culture and to prevent the risk-taking that led to the 2008 financial crisis.

The new legislation will come into effect from January 2014 and will apply to bonuses paid in 2015.

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

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.

Sharon Bowles, chair of the European Parliament’s Economic and Monetary Affairs Committee, said: “A cap on bankers’ bonuses is not a punishment for bankers, but a realignment of the work/reward ratio. 

“Anyone receiving their annual salary, or twice their annual salary, as an additional bonus should not complain they are not sufficiently rewarded for their work. 

“The mass exodus from the City of London by disgruntled bankers demanding the astronomical bonuses of yesterday remains to be seen and I am sure fair-mindedness will prevail. 

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“The agreement on a bankers’ bonus cap will usher in a much needed culture change, not just for the City of London, but for the rest of Europe too.”