BRUSSELS — Bankers in Europe face a cap on bonuses as early as next year, after an agreement on Thursday to introduce what would be the world’s strictest pay curbs in a move politicians hope will address public anger at financial-sector greed.
The provisional agreement, announced by diplomats and officials after late-night talks between E.U. member representatives and the bloc’s parliament, means bankers face an automatic cap that sets bonuses at the level of their salaries.
If a majority of a bank’s shareholders vote in favor, that ceiling can be raised to two times a banker’s pay.
“For the first time in the history of E.U. financial market regulation, we will cap bankers’ bonuses,” said Othmar Karas, the Austrian lawmaker who helped negotiate the deal.
The backing of a majority of E.U. states is needed for the deal to be finalized.
Such limits, which are set to enter E.U. law as part of a wider overhaul of capital rules to make banks safer, will be popular on a continent struggling to emerge from the ruins of a 2008 financial crisis.
But it represents a setback for the British government, which had long argued against such absolute limits. The City of London, the region’s financial capital, with 144,000 banking staff and many more in related jobs, will be hit hardest.
As it stands in draft legislation, the cap would also apply to bankers employed by an E.U. institution but based elsewhere globally, for instance in New York, according to one official, who was not authorized to speak to the media.
There are also provisions for adjusting the value of long-term non-cash payments, so more bonuses could be paid that way without breaking through the new ceiling.
Ireland, which holds the rotating E.U. presidency and negotiated what it called a “breakthrough,” will now present the agreement to E.U. countries.
Irish Finance Minister Michael Noonan said he would ask his peers to back it at an EU ministers’ meeting on March 5 in Brussels.
The change in the law is set to be introduced as part of a wider body of legislation demanding banks set aside roughly three times more capital and build up cash buffers to cover the risk of unpaid loans, for example.
Some experts have criticized the E.U., however, for failing to keep to all of the so-called Basel III code of capital standards drawn up by international regulators to reform banking after the financial crash.
The agreement on Thursday will also require banks to outline profits and other details of operations on a country-by-country basis.
A ceiling on bonuses, the only one of its kind globally, is perhaps the most radical aspect of the new rules.
Many in banking argue, however, that such reform will do little to lower pay in finance, where head-hunters say some annual packages in London approach £5 million, or about $7.6 million.
“If the cap is implemented, it could result in significantly more complex pay structures within banks as they try to fall outside the restrictions to remain competitive globally,” said Alex Beidas, a pay specialist with the law firm Linklaters.
An earlier attempt to limit bankers’ pay with an E.U. law forcing financiers to defer bonus payments for up to five years merely prompted lenders to increase base salaries. But it would be harder for banks to raise base pay this time around.
Hedge funds and private equity firms will be excluded from such curbs, although they face restrictions on pay later this year under another E.U. law.
European Union Agrees on Plan to Cap Banker Bonuses
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European Union Agrees on Plan to Cap Banker Bonuses
