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GUEST COMMENT: Are you aware what Michel Barnier is proposing for banking pay?

Michel Barnier, listening intently

Michel Barnier, listening intently

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.

Comments (1)

  1. It does make sense to preserve social cohesion in the future. Having worked in both world financial and non financial, I have always been amazed at bonuses paid to people who are already paid a good salary to do their job the best they can. It is the entire notion of bonus which is wrong in the society. If someone creates a company from scratch and this company is making money with no debt, then he can do whatever he wants with it once he has paid the taxes. But as far as I know they are no example in the banking industry.

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