EU nears cap on banker bonuses, as Osborne holds out

The UK is one of just three countries opposed to the cap.

EU banking reforms are set to impose a limit on bankers' pay, against the wishes of much of the City of London.

The proposal, backed by the democratically-elected European Parliament, would cap bonuses that exceed the recipients salary. France has recently come around to the idea, and, the Financial Times reports, there is now a "clear majority" which is willing to agree to the cap just to get the debate out of the way. The rest of the reforms, which are focused on bank capital ratios, are considered urgent, and there is little desire to hold them up over the pay caps.

The UK, leading those who oppose the pay caps, has suggested that even it is preparing to case on the basic idea, circulating a policy document suggesting reforms which "build on the principle of a cap", the paper reports:

It strengthens current rules enforced in the UK with an absolute ban on upfront cash bonuses that exceed salary and a requirement for bank shareholders to set a cap on variable to fixed pay.

But a ban on upfront cash bonuses is very different from the ban on the entire bonus exceeding salary. That proposed ban can, with a vote from a supermajority of shareholders, be weakened to a 2:1 ratio of bonus to salary, but even that is still a far more restrictive requirement than the one the UK desires.

The British government has reasons for its scepticism. The argument for including bonuses in a bill focused on bank stability is that, when a bonus can exceed the value of one's salary, the incentive to play it safe rather than go for massive short-term profits is reduced. But the UK also makes a compelling argument for focusing just on cash bonuses. Other types of bonus, like front-dated stock options or bonds which vest only if the employer still exists, can be tweaked so as to encourage not only profit but healthy, stable, profit.

In contrast, if the EU's current plan passes, the incentive will be to offer the entire value of the cap in up-front cash. The magnitude of the bonus may thus be shrunk, but its incentive effects could end up being perversely increased.

Nonetheless, politically the economic effects of the bonus cap are likely to be less important than the simple fact of its existence. The banking sector has been seen as overpaid by most of the British public for a very long time now, and if Osborne digs his heels in over what many will see as the right for banks to pay unlimited bonuses, he could find himself even more unpopular than he already is.

That is especially true if the importance of what is being delayed hits home. The capital ratios — which are the main focus of the talks — are widely seen as one of the first post-crisis regulations which could actually have a real effect on the likelihood and severity of future financial crises. By requiring banks to have a certain amount of liquid capital on hand, the move will, it is hoped, prevent the damaging bank runs which ultimately contributed to the recession in 2008. If the Chancellor is seen as holding the economy hostage over the right for banks to pay unlimited bonuses, his image as a canny political operative may be damaged somewhat.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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There's something missing from our counter-terrorism debate

The policy reckoning that occured after the 2005 terrorist attacks did not happen after the one in 2016. 

“Once the rockets are up, who cares where they come down? That's not my department, says Wernher von Braun.” That satirical lyric about Nazi rocket scientists has come to mind more than few times watching various tech giants give testimony in front of the Home Affairs Select Committee, one of the underreported sub-plots of life at Westminster.

During their ongoing inquiry into hate crime in the United Kingdom, committee chair Yvette Cooper has found a staggering amount of hate speech being circulated freely on the largest and most profitable social media platform. Seperately, an ongoing investigation by the Times has uncovered how advertising revenue from Google and YouTube makes its way straight into the coffers of extremist groups, ranging from Islamist extremists to white supremacists and anti-Semites.

One of the many remarkable aspects of the inquiry has been the von Braunesque reaction by the movers and shakers at these tech companies. Once the ad revenue is handed out, who cares what it pays for? That’s not my department is the overwhelming message of much of the testimony.

The problem gains an added urgency now that the perpetrator of the Westminster attacks has been named as Khalid Masood, a British-born 52-year-old with a string of petty convictions across two decades from 1982 to 2002. He is of the same generation and profile as Thomas Mair, the white supremacist behind the last act of domestic terrorism on British shores, though Mair’s online radicalisation occurred on far-right websites, while Masood instead mimicked the methods of Isis attacks on the continent.  Despite that, both fitted many of the classic profiles of a “lone wolf” attack, although my colleague Amelia explains well why that term is increasingly outmoded.

One thing that some civil servants have observed is that it is relatively easy to get MPs to understand anti-terror measures based around either a form of electronic communication they use themselves – like text messaging or email, for instance – or a physical place which they might have in their own constituencies. But legislation has been sluggish in getting to grips with radicalisation online and slow at cutting off funding sources.

As I’ve written before, though there  are important differences between these two ideologies, the radicalisation journey is similar and tends to have the same staging posts: petty criminality, a drift from the fringes of respectable Internet sub-cultures to extremist websites, and finally violence.  We don’t yet know how closely Masood’s journey follows that pattern – but what is clear is that the policy rethink about British counter-terror after the July bombings in 2005 has yet to have an equivalent echo online. The success of that approach is shown in that these attacks are largely thwarted in the United Kingdom. But what needs to happen is a realisation that what happens when the rockets come down is very much the department of the world’s communication companies. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.