PRA chief hits out at EU bonus cap

Andrew Bailey BBA Conference 2012 480
PRA chief executive Andrew Bailey

New Prudential Regulation chief executive Andrew Bailey has criticised the measures approved by the EU last week to cap bankers’ bonuses, saying they will only serve to push up fixed salaries.

In an interview with The Mail on Sunday, Bailey, who was appointed Bank of England deputy governor and PRA chief executive last month, said he did not believe prescriptive rules could change the banking culture.

He told the paper: “I worry about the desire I see in Europe to make a lot of ever more detailed rules because they think that is the way to get consistency of behaviour. I am not convinced. There is a tension between a rules-based solution and a solution that uses judgement against a framework of rules.

“We in the PRA are implementing a model that is about judgements around a framework. One reason is because we have to be looking forward at the risks and to do that you have to exercise judgement.”

EU member states agreed a deal last week which would see bankers’ bonuses capped at a year’s pay, with bonuses of up to two years’ pay if approved by shareholders.

Bailey said: “‘I know it is attractive to limit variable remuneration to  a set ratio of fixed remuneration, but first, there is a risk the response will be to push up the fixed pay of bankers.

“Once you give more fixed pay you cannot get it back. What we  have been pushing for is for banks to use shares or other non-cash bonuses that can be clawed back if something goes wrong.”

His comments come up Swiss voters backed curbs on corporate pay which go beyond the measures agreed by the EU.

The Financial Times reports some 68 per cent of voters have approved rules which give shareholders a binding vote on executive pay; banning payouts to attract new management or payments made to departing executives, known as “golden hellos and goodbyes”, requiring annual re-elections for directors and proposing criminal sanctions for non-compliance.

The newspaper says Britain plans a last-ditch attempt to revise the EU bonus cap at a meeting with finance ministers tomorrow.

But one diplomat told the paper: “It is too later, it is really too late. We do not want to stigmatise one member state but we have come to the end of the argument.”