Europe Votes to Curb Banker Bonuses - 'but bankers can skirt ristrictions offering higher base pay'

European lawmakers voted on Tuesday to cap banker bonuses at the region’s largest institutions, as part of a major set of reforms designed to curb the financial industry’s risky behavior.

The legislation had faced major opposition from Britain, home to Europe’s largest financial center, but was outflanked in recent weeks by other European Union countries that wanted to rein in the excesses that contributed to the financial crisis.

As part of the hard-fought deal, compensation limits will restrict bonus payments to one year’s base salary, though that figure can be doubled if a majority of shareholders approve. The legislation will apply to all banks active in Europe, as well as the international divisions of European firms like Barclays and UBS.

“The rules will put an end to the culture of excessive bonuses, which encouraged risk-taking for short-term gains,” said José Manuel Barroso, president of the European Commission. “This is a question of fairness. If taxpayers are being asked to pick up the bill after the financial crisis, banks must also make a contribution.”

While lawmakers hailed the vote as a major victory, many in Europe’s finance sector questioned whether the new laws would lead to overall reductions in bankers’ pay. Analysts warned that many firms would look to skirt the new restrictions by offering higher base salaries for their top earners, which would allow them to continue to receive multi-million dollar salaries despite the cap on bonuses.  “Inevitably there will be an increase in fixed pay,” said Nicholas Squire, an employment partner at the law firm Freshfields Bruckhaus Deringer in London. “Banks will see their costs rise because they will have to pay higher base salaries.”

Read more: Europe Votes to Curb Banker Bonuses - NYTimes.com

EU Also Nears Deal on Basel Rules After Clashes on Bonuses - by Jim Brunsden & Rebecca Christie

European Union finance ministers neared an accord on a wide-ranging plan to strengthen bank capital requirements as they wrangled with U.K. Chancellor of the Exchequer George Osborne over proposed curbs to bankers’ bonuses.

“I can’t support the proposal currently on the table, but I hope if we make progress over the next couple of weeks that we have a proposal I can support,” Osborne said in Brussels. Other nations backed the deal, with German Finance Minister Wolfgang Schaeuble endorsing a last search for common ground.

Ireland, which holds the EU’s rotating presidency, pledged to iron out the last elements of the agreement in coming weeks. EU nations will seek technical adjustments to the timing for adopting all the new rules, as well as on how big a slice of banker bonuses can be eligible for a combination of deferred payment and favorable accounting treatment.

European Parliament members won’t agree to go beyond last week’s hard-fought compromise, said Othmar Karas, the lead lawmaker on the capital rules, and European Parliament President Martin Schulz. Both lawmakers said the measure would go before the legislature for a vote in April based on the existing framework.

Note EU-Digest: the EU parliament must make sure that the financial community receives no escape clauses in the bonus deal by watering down the agreement. 

Read more: EU Nears Deal on Basel Rules After Clashes on Bonuses - Bloomberg