Last week Michel Barnier, the EU financial services commissioner, cause shockwaves in the financial services world with comments he made in an interview with Reuters on bankers pay. In particular, he indicated that one idea being explored is the imposition of a ratio between fixed base salary and bonuses. Another idea being mooted was a ratio between the lowest level of pay in a bank and the highest level of pay.
Such proposals would be likely to be highly controversial, particularly for non-UK headquartered banks with large operations in the City.
Although the FSA Code currently requires banks to set ratios between fixed and variable pay, it is for the banks themselves to set those ratios. Barnier's proposals would, if implemented, mean that banks would have to comply with ratios imposed by outside regulators.
For individuals working in theUKoperations of US or Asian-headquartered banks, that would be deeply unpopular when their colleagues working in the same business lines in theUSorAsiawould not be subject to any such externally-imposed ratios on their bonuses at all.
In addition, the net effect of it might be to encourage the rise in fixed base salaries (something that has already been witnessed in the last 2 to 3 years) as this might be the only effective way of enabling higher variable remuneration to be paid.
When Michel Barnier speaks, it is therefore worth taking note.
Sam Whitaker is a counsel in the Executive Compensation & Employee Benefits practice in the London office of Shearman & Sterling.