BANKS SHOULD pay bonuses in debt, which would be wiped out if an institution failed, an EU banking report will today suggest as Europe attempts to step up the fight over bankers’ pay.
The Liikanen commission, an independent review set up almost a year ago by EU commissioner Michel Barnier, will recommend reforms for long-term pay incentives and advocate ringfencing trading activities to make big banks safer.
Some of the panel’s most radical measures have been toned down and Mr Barnier will make a full assessment before deciding to include any of the proposals in his reforms.
The Liikanen review comes amid a difficult impasse on bank capital rules between EU member states and the European parliament, which is pushing hard for a strict ban on bonuses that exceed fixed pay.
Its ideas could form part of a potential compromise.
Using bonds as a currency for bonuses is designed to avoid the dangers of paying shares that could motivate high risk-taking.
Paying bonuses as debt was used in 2009 by lenders Royal Bank of Scotland and Lloyds Banking Group when the UK imposed restrictions on bonuses being paid in cash or shares. But for many staff the arrangement proved popular because while bank share prices were falling and no dividends were being paid, they received bonds whose par value was guaranteed, paying generous coupons.– (Copyright 2012 The Financial Times Limited)
