Tilting the Playing Field

The Economist, March 9th, 2013

Finance and Economics: Bankers’ Bonuses

“Tilting the playing field”

Berlin: Regime change in Europe

“London just became a less attractive base for bankers used to taking home bonuses worth many multiples of their basic salary.  On March 5th EU finance ministers decided that European bankers’ bonuses should be capped at a maximum of one times their base salary, rising to two times if shareholders explicitly agree.  

The declared aim of the bonus cap, which was the brainchild of the European Parliament, is to dampen the incentives for reckless risk-taking that in the past led to bank bail-outs and costs to the taxpayer. In practice, the choice facing banks is either to find a way to compete with rivals that are not bound by the cap, or to risk losing star employees to competitors…

Few would disagree that the banks’ bonus culture had to change after pre-crisis excesses.  But going against the grain of variable pay is no answer.  The cap will either drive the best people outside the EU and EI-domiciled banks, or add to fixed cost.  Neither is welcome.”

Tilting the playing field against the EU banks:  that is the question.

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