LUXURY-CAR dealers in London and posh estate agents in Paris must be spluttering. It looks increasingly likely that demands by the European Parliament for a limit on bankers’ bonuses will become law. The parliament wants bonuses to be no higher than their salaries (or double their salaries, if three-quarters of a bank’s shareholders agree).

That limit may yet be watered down in negotiations between the parliament and the EU Council, which consists of European governments. But the principle of a specified cap seems to have been accepted, despite opposition from Britain. Other European governments are keener to ensure new capital rules get passed—the bonus proposals have been appended to the directive implementing the Basel 3 rules—than to stand up in public to defend bankers’ pay. “The British government understands they are walking a fine line between appeasing the masses and chasing business out of town,” says a senior investment-bank executive. “Unfortunately they have to toe the line” if the statute passes.




Bankers also argue that a lot has been done to pay structures to align the interests of employees and shareholders. The deferred portion of bonuses is much bigger than it was; this money can be “clawed back” if the bank subsequently does badly. Some firms are rewarding employees with subordinated debt in their own institutions, meaning they will take a hit if the bank goes bust. Unsurprisingly, the politicians in Brussels are paying little attention.