Bloomberg News

Bonus Rules Hurt EU Banks in Recruitment Fight, FSB Says

October 12, 2011

(Updates with comment from human resources firm in eighth paragraph.)

Oct. 12 (Bloomberg) -- Banks in the European Union face more stringent pay and bonus rules than rivals in North America and Asia, putting them at a disadvantage in attracting talent, the Financial Stability Board said.

The U.S, Australia, Canada, Hong Kong and Japan allow banks “more flexibility” than the U.K. and other EU countries when implementing international bonus rules, the Basel-based FSB said yesterday following a global review. National regulators should address the “level-playing-field” issues, it said.

EU regulators approved laws to impose limits on cash payouts and on the size of bankers’ bonuses. Michel Barnier, the EU financial-services chief has described some awards during this year’s bonus round as “unjustifiable,” and said that he is considering further curbs.

“More work is necessary” by some nations to fully implement compensation principles for traders and managers approved by the Group of 20 countries in 2009, as well as to “address concerns over different interpretations of the standards,” the FSB said.

Thirteen of the FSB’s member countries, including EU nations, have implemented the FSB pay guidelines, the FSB said. All but one of the standards have been adopted in the U.S, Switzerland and Australia. Argentina and South Africa are among countries that have made the least progress.

Share Deferrals

“If you can’t be competitive with compensation, of course it’s going to be more challenging to attract quality people,” said Russ Gerson, chief executive officer of New York-based executive-search firm Gerson Group. When demand for talent increases “it’s going to become more challenging for the European-based institutions.”

Germany, France and the U.K. are among countries, in addition to Singapore, that have set four FSB recommendations -- such as rules on deferring bonus pay or defining the mix of cash and equities used in awards -- as minimum requirements, according to the report released yesterday. Authorities in the U.S., Japan, Hong Kong, Canada and Australia allowed firms greater flexibility, “taking account of differences in their business models and risk profiles,” according to the report.

The bonus rules haven’t hurt London’s “legacy as a global financial center,” said Steve Leeson, operations director at Morgan McKinley Group Ltd.’s financial services unit.

“There is limited evidence from financial institutions, that employees are seeking opportunities” outside London “as a result of the current market,” Leeson said. “London remains an attractive market for financial services professionals.”

ING, Rabobank

Rules in some countries go beyond the FSB’s recommendations, such as in the Netherlands, which imposed more stringent limits on variable pay as a share of total awards, according to the report. In the wake of regulations, Dutch banks including ING Groep NV and Rabobank Group are increasingly limiting bonus payments, a committee assigned to monitor payouts in that nation said in a report last month.

Under EU rules, as much as 60 percent of a bonus payout for risk-takers and senior managers must be deferred for at least three years, and half of the remaining amount must be in the form of shares.

The U.S. Federal Deposit Insurance Corp. adopted a rule in July empowering regulators to claw back some pay from top financial executives if their company was liquidated by the government. The rule authorizes the FDIC to recover pay for the two years preceding its appointment as receiver from senior executives and directors “substantially responsible” for the firm’s failure.

Three Years

The FDIC also has also proposed lenders should spread at least half of top managers’ incentive pay, including stock and options, over three years.

Some EU regulators have told the FSB that international differences on bonus deferrals and other aspects of pay structure “could disadvantage their banks in recruiting and retaining key personnel,” the FSB said. The U.K. has raised concerns that rules curbing guaranteed bonuses aren’t being applied with equal vigor in all jurisdictions.

Andrea Enria, chairman of the European Banking Authority, told lawmakers on Oct. 4 that the EBA will “come out with some recommendations on how to strengthen” implementation of the EU pay rules. The EU needs “much more consistency and tightness” in the way compensation is approached. The EBA coordinates the work of national regulators in the 27-nation EU.

The FSB works with national regulators from G-20 nations and sets tasks for global standard-setting organizations such as the Basel Committee on Banking Supervision.

--With assistance from Ambereen Choudhury in London. Editors: Anthony Aarons, Steve Bailey

To contact the reporters on this story: Jim Brunsden in Brussels at; Charles Mead in New York at

To contact the editor responsible for this story: Anthony Aarons at; David Scheer at

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