The Socialist group of MEPs claimed a big victory on Monday night when Labour MEP Arlene McCarthy’s report on bankers’ remuneration and re-securitisations was carried by a large majority of 36 to one, with four abstentions, in the Parliament’s Economic and Monetary Affairs Committee.
The new draft Capital Requirements Directive (CRD3) takes radical steps on limiting the salaries and bonuses of bank directors. In particular, it would impose a blanket ban on bonuses for directors of bailed out banks until taxpayers are repaid, and place a 500,000-euro cap on director salaries for banks receiving support.
For non-taxpayer supported banks, the legislation emphasises the need for a proportionate balance between salaries and bonuses. Bonuses are capped so they cannot be larger than salary.
Meanwhile, the introduction of a deferral principle means bonuses cannot be paid upfront when the bank will not realise profits until a future date. At least 40 per cent of a bonus (60 per cent for large bonuses) would be deferred for a period of at least five years. This could then be clawed back if performance is less than expected.
Ms McCarthy’s report also introduces a crackdown on cash bonuses and measures to defer bonuses. Cash bonuses would be limited to a maximum of 6 per cent of total bonuses, with the rest composed of share and pension contributions. These shares could then be called in as equity if the bank fell into financial difficulties. The proposals also prevent tax avoidance on bonuses.
CRD3 is the latest in a series of European legislation expected to provide much needed strong regulation of the financial sector. The vote by the whole Parliament is set to take place next month following negotiations now underway between Ms McCarthy, the European Commission and the Council of Ministers.
The negotiations are likely to see a split between Conservative and Liberal Democrat MEPs and their government in Whitehall. While Tory and Lib Dem MEPs supported much of the report in committee, but opposed the tough stance on bonuses taken by McCarthy, George Osborne’s Treasury has already stated its opposition to the draft legislation.
