EU pushes for G20 bank bonus 'sanctions'

17th September 2009, Comments 0 comments

The EU contends that bonuses handed out in the financial sector should be tied to "long-term performance."

Brussels -- European Union leaders will press their G20 partners to back "sanctions" for banks that hand out excessive bonuses, according to a draft summit communiqué seen by AFP on Wednesday.

"The G20 should commit to agreeing to binding rules for financial institutions on variable remunerations backed up by the threat of sanctions at the national level," the draft said ahead of a special summit in Brussels.

The text will be put to the heads of the 27 EU member states meeting on Thursday evening to agree a common position to take to the G20 summit in Pittsburgh of the world's major economies next week.

Seeking new rules that "fulfil the commitment subscribed to in London" in April at the last G20 summit, the EU contends that bonuses handed out in the financial sector should be tied to "long-term performance."

The draft calls for an end to guaranteed bonuses, with financial police given powers to retroactively slash payments where investments fail to deliver and tools to force boardrooms to control levels of high-risk speculation.

The EU leaders will also seek to block the exercising of stock options over set timeframes and end the insulation of top directors from fall-out when banks fail, following a number of high-profile payouts to failed bank chiefs.

Politicians have faced a backlash from taxpayers angry at what they see as excessive profits being made by banks that benefited from massive injections of public money following meltdown in the world's financial order a year ago.

French President Nicolas Sarkozy has threatened to walk out of the Pittsburgh talks on September 24 and 25 if serious bonus curbs are not implemented, although Washington has so far resisted heavy regulation.

While Sarkozy's proposals for capping bonuses have met with reservations in Britain, President Barack Obama on Monday warned that Wall Street executives can no longer expect taxpayers "to break their fall."

The final text from Thursday's EU dinner summit can change, but the draft already goes further than a deal reached between G20 finance ministers at a preparatory meeting in London on September 5.

There they called for "global standards on pay structure ... to ensure compensation practices are aligned with long-term value creation and financial stability," including the "effective clawback" of payments.

It amplifies a letter seeking "binding rules" for big financial companies signed jointly by Sarkozy, British Prime Minister Gordon Brown and German Chancellor Angela Merkel in the days leading up to the London talks.

On Thursday EU leaders will also call on the G20 to "explore ways to limit total variable remuneration in a bank either to a certain proportion of total compensation or the bank’s revenues and/or profits."

Brown said after a working dinner with Sarkozy on Tuesday that he was confident the G20 would agree on "action and not words" in Pittsburgh with lavish bonuses having "appalled everyone across the world."

Dutch banks unilaterally imposed limits on bonuses and pay last week in what the Netherlands' finance minister said could be a model for the Group of 20 countries to follow.

In its new banking code, bonuses will no longer be allowed to exceed annual salaries as of January and salaries themselves will have to be below a median figure for comparable jobs.

There will also be a provision for clawback if a bank runs into trouble with pay-offs restricted to a maximum of one year's salary and top directors prevented from exercising stock options for three years.

Elsewhere, EU leaders want budget deficits reduced with "fiscal policies... reoriented towards sustainability" and the G20 to police protectionist tensions threatening strategies for withdrawing emergency monetary stimulus.

A re-configuration of the International Monetary Fund, within a wider overhaul of post-World War II institutions to offer a greater say to emerging economies, is also sought alongside funds to fight global warming.

Roddy Thomson/AFP/Expatica

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