LONDON: The UK’s banks have been told by the Bank of England that they need to rewrite the employment contracts of hundreds of staff receiving top-up payments alongside their salaries because of the European Union’s bonus cap.
Andrew Bailey, deputy governor of the Bank of England, says the contracts must be amended to comply with a ruling from the European Banking Authority, which says that many of the attempts by major banks in the UK to sidestep the restrictions on bonuses are breaching the spirit of the rules.
Ever since last year – when the EU imposed a limit on bonuses to 100% of salary, or 200% if shareholders give their approval – banks have been looking for ways to prevent the pay of their top bankers from falling. Many started paying “allowances” but the EBA concluded in October that these were effectively variable pay – with characteristics like bonuses – and in breach of the ratio imposed by the EU.
Bailey, who remains opposed to the bonus cap, has now responded to the EBA’s findings and told banks to make sure that any allowance – also known as role-based pay – cannot be withdrawn or clawed back as a bonus might be.
Interviewed at the Reuters financial regulation summit, Bailey said: “Many of them don’t need to rip them [the contracts] up. They need to amend the terms. The effect is to make the allowances more fixed and the scope to withdraw them is that much more limited,” he added.
Most top bankers in the UK have been handed allowances to get around the bonus cap. Antony Jenkins, boss of Barclays, and his counterpart at Lloyds Banking Group, António Horta-Osório, received around £1m each in allowances. Stuart Gulliver, HSBC’s chief executive, has been handed £1.7m. The allowances are also being paid to senior individuals inside the organisations.
The requirement is expected to be enforced for the 2015 bonus year – and have an impact on payouts next April. According to the EBA’s analysis 39 banks in six EU states are paying allowances following the introduction of the bonus cap although it is not clear how many of these top-up payments were regarded as being variable rather than fixed pay.
