Is the EU bonus cap somehow banker-friendly?
After months of banter, banks have seemingly agreed on a universal way to combat EU bonus caps. It may sound crazy, but for some bankers it’s entirely possible that the solution could be better than not even having a cap in the first place.
The new resolution being talked about by the likes of Goldman Sachs, Bank of America and Barclays is generally being referred to as role-based pay, or allowances. The idea is to provide top bankers who would be affected by the new rules, which limit bonuses to twice that of base salary, with weekly, monthly or quarterly pay installments.
It’s essentially a hybrid pay model that sits in the grey area between fixed pay and bonuses. The size of the payments can be reset each year pending the person’s role and economic factors, but they won’t be directly aligned with performance, so they say. However, like a bonus, the payments can be clawed back.
“These are bonuses in disguise,” one EU lawmaker told Dealbook. Who’s to say they aren’t better? Unlike bonuses, which these days are paid heavily stock, pay installments wouldn’t have to vest. Plus, banks have historically been very hesitant to initiate clawbacks unless they’re essentially forced to.
The real question is whether these payments would add up to match the amount bankers would lose under the cap. If they do, a banker could receive what would be their year-end restricted bonus throughout the year in all cash. Who says no to that?
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Quote of the Day: “It's going to be a long time before most people in the world are in love with bankers, but that is not going to stop us from working hard to be a better institution.” – Lloyd Blankfein last week
