Bankers' bonus cap architect says EU must sue UK government

HSBC Canary Wharf

One of the architects of the EU's cap on bankers' bonuses has called for the UK government to be sued for allowing banks to sidestep the new rules as two more high street banks were preparing to hand their bosses up to £1m in extra pay to avoid the clampdown.

Philippe Lamberts, the Belgian Green MEP who helped devise the restrictions, said it was clear the UK was failing to implement EU law and accused the coalition of having no interest in halting "absurd remuneration packages". He urged the European commission to take the UK to court for allowing bankers to bend the rules which limit bonuses to 100% of salary or 200% if shareholders approve.

His plea came as Barclays and the bailed-out Lloyds Banking Group are expected to reveal they are handing their bosses Antony Jenkins and António Horta-Osório new share awards, on top of their salaries, to prevent their overall pay falling as a result of the cap. The new pay deals could be announced as early as Wednesday.

Their disclosures will follow HSBC's move to pay its chief executive, Stuart Gulliver, an additional £32,000 a week in allowances on top of his £1.2m salary, and after Virgin Money raised the salary of its boss, Jayne-Anne Gadhia, to £637,000 from £550,000 as a result of the restriction. Royal Bank of Scotland, which is 81% owned by the taxpayer and paid out £567m in bonuses after making an £8bn loss, is yet to announce its response to the bonus cap. However, it is considering asking its shareholders for permission to pay out bonuses worth 200% of salary. Standard Chartered reports its results on Wednesday when it will also face questions about how it intends to tackle the cap.

"What we are witnessing now is an attempt by the major banks, with the support of the British government, to circumvent the rules and that is to compensate what we did on terms of structure, by just raising the fixed rate of remuneration," said Lamberts.

The European commissioner for the single market, Michel Barnier, should take legal action against the UK, he said. "I will see Barnier soon and I will encourage him to do that. I know that the commission has already asked for specific information from the British government. So I will certainly take a hard look at that."

The chancellor, George Osborne, is challenging the bonus cap in the EU's highest court because it will push up the amount of fixed pay but Lamberts said he was not worried about losing because the UK government argument that the caps are illegal was based on "fragile" logic.

"People like David Cameron and George Osborne are part of the same club. These are people who are really out of touch with reality. They are part of the same class, so I think it is natural for them to defend their interests."

The MEP insisted that the EU cap on bankers' bonuses had not failed, because "disguised remuneration" was now out in the open. Barnier on Tuesday published details of which bank staff would be affected by the cap and said that "some banks are doing their utmost to circumvent remuneration rules… The commission will remain vigilant to ensure that new rules are applied in full."

The European commission said it was too early to say if any country was in breach of the capital requirements directive, known as CRD IV, which includes the bonus cap.

Lamberts, however, said the UK government was in breach of the directive:"To me it is clear that it doesn't act. And I think the best example of that is when a bank is 80% owned by the British government and they are not acting. To me they have no appetite for really going after absurd remuneration packages."

The Bank of England governor, Mark Carney, is also opposed to the restrictions and has written to the Treasury select committee to promise a new consultation this month on tougher measures to claw back bonuses and to extend the deferral period for bonuses from three to five years, in line with recommendations by last year's parliamentary commission on banking standards.

Carney warned the select committee - which is overseeing implementation of the commission's recommendations - that its proposal to claw back pension rights from individuals at banks in receipt of taxpayer support could be in breach of European human rights legislation and the UK pensions act.

Lloyds has already announced that Horta-Osório is receiving a £1.7m bonus for 2013 and is likely to reveal a payout from a long-term incentive plan of around £2.9m. It may also disclose whether bonuses are being clawed back from previous management for new provisions for PPI mis-selling and last year's £28m fine for bonus structures which encouraged mis-selling.

Powered by Guardian.co.ukThis article was written by Jennifer Rankin and Jill Treanor, for The Guardian on Tuesday 4th March 2014 18.48 Europe/London

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image: © Barry Caruth

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