EU call for global curb on bankers' mega-pay

Nick Goodway
17 Sep 2009

European Union leaders will tell the world's largest economies that they must agree on measures to curb bankers' pay and bonuses as part of their plan to overhaul the global financial system.

A draft statement prepared for today's Euro-summit in Brussels, says at the G20 meeting in Pittsburgh world leaders should set binding rules on how banks reward their employees. A year after the financial crisis came to a head, Europe wants to make as certain as possible measures are in place to prevent it happening again.

The 27-nation meeting in Brussels is likely to see European leaders take a much harder line that their US counterparts over how much bankers' rewards are directly linked to their risk-taking.

French President Nicolas Sarkozy has publicly said he will walk out of the G20 meeting if other nations refuse to back his hard line.

Swedish Prime Minister Fredrik Reinfeldt, whose country currently holds the EU presidency, said governments must legislate because banks are going back to business as usual as economies recover.

"We have some suggestions on how to get a better balance, so that we don't encourage excessive risk taking. We think that was one of the major sources of creating this financial crisis," he said.

The draft summit statement includes specific details on why employee's pay and bonuses have to be linked to a bank's long-term performance, and that bonuses must be able to be clawed back if deals or trades go sour.

That would mean an end to guaranteed bonuses which have started to reappear as banks go on hiring sprees. These are made to attract or retain executives and are not based on any kind of performance targets.

The EU leaders also want share option bonuses to be held for a long period of time before the y can be exercised or sold.