The EU has destined people at RBS and Commerz to dreadful bonuses
If you work for Commerzbank, you're probably not exactly the kind of person who expects to retire at 40 and live on a grape plantation in Southern Italy. The same probably applies to RBS (with the possible exception of Antonio Polverino).
Nevertheless, this week's European Union bonus rules risk relegating RBS and Commerz people to even smaller bonuses than they may have received in their absence.
The precise wording of the EU's document is as follows:
In the case of credit institutions that benefit from exceptional government intervention:
(i) variable remuneration is strictly limited as a percentage of net revenues when it is inconsistent with the maintenance of a sound capital base and timely exit from government support,
(ii) the relevant competent authorities shall require credit institutions to restructure compensation in a manner aligned with sound risk management and long-term growth, including inter alia and when appropriate establishing limits to the remuneration of Directors.
(iii) no variable remuneration should be paid to the directors of that institution unless this is justified.
While this means that the likes of RBS and Commerz will be free to pay bonuses, it means they won't be free to pay that much.
"I'd read this as saying that the total bonus pool should be capped as percentage of net revenues, with member states allowed to decide the appropriate level," says Jon Terry, head of reward at PWC. "If that's going to be consistent with repaying government money, you'd think the percentage needs to be lower than other banks, and maybe even lower that it is currently."
Commerzbank didn't pay bonuses at all last year, so people there may not be too upset.
RBS, however, did rustle up a 1.3bn bonus pool after chatting things through with UKFI. Even so, investment banking compensation only totalled 27% of 2009 investment banking revenues. If RBS is forced to reduce this further, there may be complaints. Unsurprisingly, Hester wants to start escaping government shackles in 2011, but that will be too late for the 2010 bonus round.
