EUROPEAN Union leaders agreed yesterday on a common position to press for curbs on bonuses in the financial sector at the summit of G20 developed and emerging economies on September 24-25, EU diplomats said.
“The bonuses have been agreed in principle as in the draft conclusions but there was a clawback clause added,” one diplomat said.
Bonuses should link the amount of cash paid to long-term performance and the curb should be backed in each G20 country with the threat of sanctions, EU leaders agreed.
Many believe such bonuses led to excessive risk-taking in the banking sector and helped trigger the global financial crisis.
The leaders also agreed that rules on bonuses should ensure that the board of a financial institution had oversight over the amount paid and the risk involved, that there should be no guaranteed bonuses and the system would be more transparent.
Stock options could be exercised or stocks sold only after a certain period of time, EU leaders agreed, and bankers’ pay could be reduced if the bank’s performance deteriorated.
Bonuses should be limited either in relation to a certain proportion of total pay or the bank’s revenues or profits. If a bank’s performance deteriorated, the bonus could be reclaimed, diplomats said.
“People are horrified, normal citizens, at the fact that banks that have been receiving huge amounts of public money, of taxpayers’ money, are still keeping in some cases exorbitant bonuses,” European Commission president Jose Barroso said earlier yesterday. “It’s a point of restoring credibility to the financial system.”
The EU wants G-20 governments to set binding rules on bonus pay and link managers’ variable pay to their fixed remuneration.
However US president Barack Obama is reluctant “to set individual compensation levels,” Michael Froman, a deputy assistant to the president, said yesterday.
Differences over bonuses highlight the difficulties the world’s leading industrialised and emerging economies face as they seek agreement on measures to prevent a recurrence of the worst financial and economic crisis since World War II.
European leaders are pressing Obama and other world leaders to rein in bonus payments awarded by banks, saying they set short-term profit incentives that helped cause the financial crisis that spawned a global recession.
“It’s time to say ‘enough is enough’ and I hope that we tonight can say that the bonus bubble has burst,” Swedish Prime Minister Fredrik Reinfeldt, whose country holds the EU’s rotating presidency, said before yesterday’s meeting. “I’m pretty optimistic now that we will get a European single voice acting in Pittsburgh.”
British prime minister Gordon Brown joined German Chancellor Angela Merkel and French President Nicolas Sarkozy this month in calling for G-20 leaders to impose binding global rules on bonuses and back “sanctions” for banks that refuse to co-operate.
Yet Britain. has rejected signing up to proposals that would have any national government set a cap on bonuses, suggesting countries will implement any agreement in different ways.
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