Why the bankers' bonus cap should be ignored - FedEE Chief attacks cap on bankers' pay

First Published 20th October 2014

The European Banking Authority's (EBA) insistence that a bonus cap should be applied to bankers pay remains advisory and is, in any case, made on the basis of a decision that was beyond the EU's powers.

Speaking at a financial sector forum this weekend the Secretary-General of the Federation of International Employers (FedEE), Robin Chater, repeated his long- standing challenge to the imposition of a cap on bankers' bonus payments.

"The fact that the EBA has not produced its final guidelines on the bonus cap has not prevented them from trying to apply pressure on banks and the Bank of England's Prudential Regulation Authority to introduce an effective cap now. Unfortunately, many banks are not fully standing up to the EBA and are instead seeking to maintain "role-based allowances" for senior personnel.

What I do not understand is why the banks do not directly challenge the EU's powers to regulate pay? Past laxity by member states has allowed several EU Directives to contain remuneration-related elements that are not connected with "equal pay" - the only valid grounds under the EU treaty for such measures to be introduced at an EU level. Thus measures governing job posting and temporary agency workers both contain unjustifiable pay clauses.

If the founding fathers of the European Union had wished to extend the its powers to cover remuneration then it would have been clearly specified within the EU treaty. As it stands - article 153 (5) of the Lisbon Treaty states that EU powers do not extend to pay, the right of association, the right to strike or the right to impose lock-outs.

Whatever popular support there may be for curbing pay levels in the financial sector there are no clear grounds for imposing a EU-wide cap on any form of remuneration. I suspect that support for the bonus cap from some member states was just a back-door attempt to undermine the UK's dominance in financial markets. What legislators do not fully appreciate - largely because they are naïve and unqualified to do so - is that a significant reduction in bankers' pay will only increase the risk that financial institutions will be under greater threat from fraud and corruption. Why the City of London is so strong is largely because it operates with a high level of integrity, as its top people are sufficiently well paid not to undermine the system for personal gain. "