The European Union wants to make limits on bankers’ pay a key issue when leaders from the Group of 20 largest economies meet in Pittsburgh later this month.
Several of the bloc’s finance ministers, in Brussels for a special meeting to prepare a common negotiating stance for the G-20 summit, cited pay curbs as their main priority.
“We have to stop the restarting of the bonus culture,” Swedish Finance Minister Anders Borg told journalists before the ministers’ meeting. “Bankers are acting like it’s 1999 and actually it’s 2009.”
Because Sweden currently holds the E.U.’s rotating presidency, Borg is chairing the ministers’ meeting and can steer its agenda.
Executive compensation has been a thorny issue in Europe and the U.S. since the start of the financial crisis.
Some bankers who lost their jobs in the downturn left struggling banks with lucrative pay packages. Jean-Paul Votron, former chief executive of bankrupt Fortis NV, left with EUR6.3 million. Royal Bank of Scotland Group PLC’s (RBS) former chief executive Fred Goodwin retired with a GBP700,000 yearly pension a month before the bank reported the largest annual loss in U.K. corporate history.
Several large banks recently reported a return to profitability in the second quarter of the year and have made provisions for bonus payouts. At the same time, unemployment across the E.U. is at a 10-year high, causing some to wonder whether the financial sector should return to business as usual while others continue to feel the effects of the recent banking crisis.
Several E.U. policy makers say their efforts to curb bankers’ pay aren’t vindictive, but are designed to reduce excessive risk-taking.
“Member states in the E.U. should follow guidelines from our recommendations in April,” said European Commissioner for Economic and Monetary Affairs Joaquin Almunia.
Those guidelines call for a better alignment of pay incentives to ensure bankers don’t take huge risks with the hope of scoring a large year-end bonus.
France is leading the E.U.’s push for stronger pay curbs. French President Nicholas Sarkozy last week declared that 50% of bonuses should be paid over three-year period and should be given out based only on performance. French Finance Minister Christine Lagarde is proposing other options at the ministers’ meeting, including a targeted tax or a limit on the share of a banks’ profit that can be paid in bonuses.
Before E.U. countries take this issue to the Pittsburgh meeting and try to convince the U.S., Japan and other large economies to write new rules, the bloc’s finance ministers will try to reach their own consensus. This won’t be easy since the U.K., which wants to protect London’s role as one of the world’s largest financial centers, is balking at strict curbs on bankers’ pay without clear international consensus.
“Some major countries are moving the right direction, but not every major country is,” Dutch Finance Minister Wouter Bos told journalists before the ministers’ meeting when asked about the U.K.’s stance.