European Parliament approves cap on bankers’ bonuses

| July 7, 2010
European Parliament approves cap on bankers’ bonuses

From January next year, restrictions on bankers’ bonuses will take effect, the European Parliament has announced today.

Under the deal agreed by the EU members last month, cash bonuses will be capped at 30% of the total bonus.

60% of bonuses should be variable and for future payment only, with at least 40% having to be deferred for three years and will be recoverable if investments do not perform as expected.

Remaining payments will be deferred and linked to long-term performance.

The new rules will apply to all 27 EU members, however, similar measures are being implemented in other countries, including the UK.

Last month, US authorities issued new banking guidelines aimed at curbing excessive pay and bonuses.

Many have long been arguing that excessive bankers’ bonuses reward the risk-taking that led to the financial crisis.

Commenting on today’s restrictions, EU financial services commissioner Michel Barnier said: “The EU is leading the way in curbing unsound remuneration practices in banks.”

Meanwhile, the new measures will also apply to hedge funds and could therefore have major impact on London’s financial services sector, since the London is home to 80% of Europe’s hedge funds.

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