Barclays aims to dodge EU bank bonus cap with new top-up payments to staff

Dunce's Cap

Outrageous!

Barclays is working on ways to get around around the European Union's cap on bonuses by handing its top bankers new payments to top up perceived shortfalls caused by politicians' attempts to clamp down on escalating City rewards.

In proposals that were described as outrageous by campaigners for pay reform, the bank has been discussing a scheme with its major investors about how it might sidestep the restrictions on bonus payments being imposed by the EU from January. The restrictions are already subject to a legal challenge by George Osborne.

Barclays, whose new boss, Antony Jenkins, has pledged to clean up its culture after the Libor-rigging scandal, is not alone among major banks in sounding out investors about revamped pay policies. But it is thought to be presenting more detailed proposals than its UK rivals.

The new rules the banks are eager to avoid mean bankers' annual bonuses cannot be greater than their salary – or double their salary if shareholders have given specific approval.

Barclays' current plan, reported by Sky News, is to hand out a third payment to bankers in addition to the basic salary and traditional bonuses. The payment could take the form of a monthly allowance, paid in cash in addition to salary but not taken into account when bonuses are allocated.

Barclays refused to comment but the bank is risking an angry reaction from investors after tapping them for a £6bn cash call last month. It had been expected to be at the forefront of pay reform after appointing the City lawyer Anthony Salz, also a director of the Scott Trust, owner of the Guardian, to review its culture. The bank has been attempting to regain public confidence and is participating in a meeting between company bosses and religious leaders at a conference in London on Thursday.

City regulators have feared that banks would look for ways to get around the bonus cap, most likely by handing out increases in basic salaries. Douglas Flint, HSBC's chairman, admitted in August that the bonus cap might result in pay rises.

Martin Wheatley, the chief executive of the Financial Conduct Authority, warned in May that the last time regulators attempted to restrict bonuses, shortly after the banking crisis, the pay of middle-ranking bank staff, known as vice-presidents, had gone up "by 100%". He said this was likely to repeated. Andrew Bailey, the head of the Prudential Regulation Authority, the City's new banking regulator, had calculated the new EU cap could push up banking salaries by £500m a year.

Last month Osborne launched a legal challenge to the cap because, the chancellor claimed, it will make the financial sector more risky by reducing the impact of new rules, introduced since the crisis, which allow bonuses to be clawed back.

Campaigners for City and pay reform were concerned by the Barclays proposals. David Hillman, a spokesman for the Robin Hood Tax campaign, which lobbies for a tax on bank transactions, said: "Despite protestations to the contrary, it's clear that banks have still not curbed their addiction to grotesque levels of pay. Having brought down the global economy, accepting reduced bonuses should be the least bankers do to make amends.

"Rather than taking the EU bonus cap to court, the UK government should be ensuring such excessive wealth helps pay for the sector's past mistakes," Hillman said.

Shareholders are thought to be seeking more information from the bank – which is accustomed to showdowns over pay policies – about how any additional payments would be devised and how bankers would receive them. With the allowances appearing to effectively push up the fixed element of bankers' pay, shareholders may also expect bonuses to be reduced.

Deborah Hargreaves, the director of the High Pay Centre, said the proposal by Barclays was "completely outrageous".

"After the Salz report came out Barclays said it was going to be ethical on pay and link pay to the performance of the group. This seems to go against that. Salz also said the bank used money as the only way of influencing staff," said Hargreaves, a former business editor of the Guardian.

The cap applies to "code" staff – those regarded as taking and monitoring risk. The UK has 1,300 code staff and Barclays has nearly 400. However, the European Banking Authority is consulting on rules that would require the cap to be imposed on anyone earning over €500,000 (£425,000). At Barclays 1,338 of its bankers received more than £500,000 last year.

Powered by Guardian.co.ukThis article was written by Jill Treanor, for The Guardian on Wednesday 23rd October 2013 19.40 Europe/London

guardian.co.uk © Guardian News and Media Limited 2010

 

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