United Kingdom

E.U. Pushing for Cap on Bankers' Bonuses Despite Objections From British Chancellor


Credit: conservativeparty/photo on flickr

British Chancellor of the Exchequer George Osborne has told European Union finance ministers that he cannot back plans to cap bankers' bonuses.

E.U. officials want to cap bonuses at 100 percent of salary, or at 200 percent if shareholders agree.  

Financial services in the U.K. contribute a huge amount in tax revenue, and unsurprisingly some in the City of London are concerned that the cap will turn away talent. 

Those working in the financial services industry in the U.K have already had to deal with the bank levy in a political climate where the "bankers caused the crisis" rhetoric is used across the political spectrum.

Unfortunately for those in the financial sector banking and capitalism will continue to serve as the whipping boys for governments all across the world as they are blamed for a crisis that was largely the creation of governments, not greedy bankers. Of course in a free market without bailouts and other protective government mechanisms those who behave badly get punished, not rewarded.

The E.U. proposal does not only highlight bad economics, it also highlights the absurd way that legislation is implemented within the E.U. Regardless of George Osborne's protests the E.U. could still impose a cap on bankers' bonuses. The BBC is reporting that the British government could invoke the "Luxembourg Compromise" under which a member of the E.U. can block a majority decision if a national interest is at risk.

The bankers' bonuses cap is only the latest ill-advised piece of reform to be backed by the E.U. In January the E.U. finance ministers approved a financial transaction tax for 11 eurozone member states. It seems that many in Europe believe that capping income and taxing financial transactions will help restore economic stability and growth. What could possibly go wrong?

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  1. Apparently in the EU they like companies keeping the profits. How about a cap on worker pay?

    1. So it’s more like Welles’ War of the Worlds broadcast? Lots of panic, screaming in the streets, and suicides over nothing?

      1. One news report I watched had some girl talking in a cracked voice about huddling with some dormmates and crying in fear all night after they heard about it. Morons.

        1. Has she been given a blog to contribute to modern feminism yet?

        2. You know, in an alternative universe, women got tougher–working out like crazy, training themselves in combat, getting technical and science educations, and wearing tight leather clothes all of the time.

          1. Go on…

            1. See, they figured that the only way to really achieve equality was to totally replace men as the planet’s badasses. In essence, they became a combination of Ted Nugent and Clint Eastwood. Except that they also decided that they needed to increase their sexuality ten-fold to secure their complete domination of Earth.

              Of course, it didn’t work, but the men are a lot happier there.

              1. So you’re basically just talking about that TNG episode where there’s the planet where the women are dominant but Riker comes in and seduces the leader because his beard is rugged?

                1. They weren’t women-dominant, they were genderless by default, but Riker got hot for one with mutant girl parts.

                  1. You’re thinking of the J’naii episode, moron, not the one I’m talking about.

                    1. Sum up better, asshole. I can’t read your walnut-sized brain.

                    2. Actually, I’m talking about a real alternative universe, not Star Trek. What does Star Trek know about alternative universes? Come, let us be reasonable–if everything were different, the individuals would be different, too. Duh.

    2. “That’s no Grand Cyclops, that’s just some fat lady tripping and wearing an eyepatch!”

    3. Unreported: the “whites only” sign was meant to be hung over a washer in the laundry room, and the swastika was in fact a good luck sigil painted by a Navajo student.

      From the comments:
      Did they expel the women wearing the blanket?

      It sounds like she was, at the very least, being insensitive to the current racial climate.

      No, it sounds like she’s a vagrant.

    4. When I was 5, the Klan marched 1 block from my home. Neighbor woman, grandmother of my friend, took us over to watch. Thought we should witness evil up close*.

      *okay, Im not sure of her exact reasoning, but that is the impression that was left on me. So, it was probably her reasoning.

      1. Two summers later, she took us to see Star Wars. Those are the only two places I remember here taking us.

        1. Are you sure you aren’t thinking of Khan Wars, the film that knocked off Star Wars but with Klan members in the heroic roles?

          1. Sorry, Klan Wars. Around here, Khan is the more natural thing to type.

            1. I thought Star Wars was Klan Wars

              Now, Vader, he’s a spirtiral brother, down with the Force and all that good shit. Then this cracker, Skywalker, gets his hands on a lightsaber and the boy decides he’s gonna run the fucking universe; gets a whole klan of whites together and they go and bust up Vader’s hood, the Death Star. Now, what the fuck do you call that?

    5. Are you gonna believe Jason Vorhees brother?

  2. I don’t like government caps on pay, but I would like more shareholder control of senior executive compensation. More than anything else, I would favor the end of the golden parachute. If a CEO produces returns that justify his receipt of $25 million a year, then great, wonderful, good for him. But when he crashes the company into a ditch or commits some hugely embarrassing act, he should not be rewarded. If anything, compensation for a CEO should be a percentage of the return generated under that CEO’s management.

    1. of course, the golden parachute deal was required to attract the talent. Without it the CEO may decide to work for the competitor.

      It’s just part of the compensation competition. Just like when the NFL team overpays for your QB, the QB had a bunch of gauranteed money in that contract before he set foot on the field

      1. Yes but the difference here is that the guy who decides to overpay the QB is the guy who actually owns the team, not an elected body which may or may not even be made up of partial owners.

        I think that there is a lot to be said for giving Shareholders more direct control to interfere in executive compensation if they believe the awards are excessive, and that includes golden parachutes. That said a blanket ban or cap on salaries or bonuses would be a bad idea and counterproductive.

      2. Maybe, but I’ve heard noises (nothing much more substantial, and I’m no expert in securities) about corporate raiders in the eighties putting downward pressure on executive compensation, with the implication being (again, not an expert) that legislation was thereafter crafted and/or insider trading laws applied to limit the power would-be raiders have in this capacity.

        I’d be interested if any of the more knowledgeable forumers can elaborate.

    2. The Securities and Exchange Commission now mandates a “Say-on-Pay” vote (it’s been required for a couple of years from bigger companies, just started this year being required for smaller companies). It’s not a binding vote, but Boards of Directors do take it seriously, if only because they don’t want pissed off shareholders voting them out of a job at the next annual meeting. Golden Parachutes, and any other facet of compensation, are a part of that vote.

    3. “shareholder control of senior executive compensation”

      With so much money invested in diverse selections of mutuals funds containing bits and pieces of perhaps hundreds of companies in many if not most portfolios, actual shareholders are not monitoring executive compensations for the most part (I’m sure some can and do). They’re usually not even monitoring individual company performance. They may be keeping track of how their funds ar doing. With a lot of retirement plans like 401K’s even the mutual funds themselves are grouped toghter and your choices tend to be fairly small. Makes the task of even knowing what executives in your portfolio are making rather daunting. Yeah, you can get a prospectus on all of that but again you’re talking about hundreds of companies. And you can’t just dump one without dumping the whole fund.

      1. At the end of the day though if management and the board set salaries too high, fund mangers can certainly sell off.

    4. There’s no reason to think that shareholder control would have any effect. How many shareholders actually pay attention to the proxy solicitations, much less vote? Very very few.

      The best way to tell whether public company CEO comp is rigged is to compare public company CEO comp to privately held company CEO comp. I think you’ll find that many of the same features are found in both worlds.

    5. One of the main problems these days is that upper management in large companies make decisions which are obvious bad on the long run, but have short term benefits.

      Lay off R&D. Save costs now, have no products to sell 2-3 years down the road.

      Sell the buildings the company owns, and as part of that deal rent them back at an astronomical rent.

      Make a bet where 99% the company gains 50 million, 1% the company lose 7 billion.

      Compensation that rewards upper management for reaching short term goals leads to such decisions. On top of that, many managers expect to be in their current position only for 18-24 months. They have no reason to care about what happens 3-5 years down the road.

      Wall Street also wants numbers now, rather than planning for the future.

  3. Price controls dont’ work. Unless by “work” you mean fuck up the market.

  4. “E.U. officials want to cap bonuses at 100 percent of salary, or at 200 percent if shareholders agree. ”

    Look for retroactive or Q4 salary increases as standard practice in the near future.

    What a bunch of a maroons.

  5. How about they work on a 0% cap on bailouts and subsidies to business instead. As long as they are playing with their own money they can do what they want, its when they start playing with my money using government that I question their salaries.

  6. Man I never would have even thought about it liek tht Wow.


  7. Unfortunately for those in the financial sector banking and capitalism will continue to serve as the whipping boys for governments all across the world as they are blamed for a crisis that was largely the creation of governments, not greedy bankers.

    Uh, what? There’s plenty of blame to go around. Government may have been the serpent but the bankers chose to eat the pomegranate.

    And forgive me for not shedding a tear for the poor, poor big banks who get bailouts and free loans from Benny Boy’s printing press whenever they want it.

  8. Honest banking is not a particularly complex business. It isn’t a business for idiots, but it’s not something that is inherently difficult to comprehend qualitatively.

    Much of what the “financial sector” does is not that, and is tantamount to fraud. It’s just constructed with a level of complexity and opacity that make it very difficult to prove, coupled with a lot of cronyism to protect the guilty both financially and legally.

    Still, this is not the right solution. You don’t solve a problem with armed robbery by limiting the amount someone is allowed to steal.

    Bottom line? It’s hard to feel sorry for the people in this industry. But this is hardly the solution, nor is executive compensation, per se, even the problem.

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