UK to challenge bankers’ bonus cap in EU court

The UK Treasury’s objection to the proposed EU bankers’ bonus cap will be heard in the European Court of Justice on Monday.

If introduced, the new rules will cap all bankers’ bonuses awarded from 2014 at a years basic salary. If shareholders approve, this may be increased to double their salary in some cases.

However, the Treasury question whether the measures will increase stability in the financial sector, and argue the cap has been “rushed through without a proper impact assessment”. 

It says the impacts of the cap are “likely to run counter to the stated objectives of the legislation, which are to ensure banks are safer, more stable, and prudentially sound”.

Banks too have argued that the rules would mean they have to pay employees higher basic wages to keep hold of them, leaving the institutions vulnerable if costs need to be cut during tough times.

The hearing in Luxembourg will be the final stage in the lengthy legal process, which the UK opened in September. The court’s final ruling is not expected until 2015. 

In recent months, investors have increased pressure on banks to reduce “excessive” bonuses.

In June, the government blocked the Royal Bank of Scotland’s plans to pay executives bonuses worth 200% their basic pay, with the backing of shareholders.

Photo: Garry Knight via Flickr

Further reading:

RBS to give £3.5m in shares to top executives

Bankers could face tougher regulation, including bonus clawback

RBS and WPP latest firms to face investor anger over executive pay

Top banking chief executives saw 10% pay rise in 2013

Barclays and BP remuneration packages lead to tough questions from investors