British banks came up with the allowances to sidestep curbs introduced two years ago that limited bonuses to 100 per cent of salary, or 200 per cent with shareholder approval. The payments are fixed, so they do not count as bonuses under the EU rule, reports The Times.
Barclays, however, has introduced an element of flexibility by making allowances dependent on an individual’s responsibilities and function. It is understood the bank has begun a review of its policy to make sure it complies with the European Union guidelines.
The revised Barclays pay policy will have to be approved by the Bank of England.
The European Banking Authority (EBA) warned in November that schemes set up by banks to get round the cap on bonuses could breach its rules. “If role-based allowances are discretionary, not predetermined, not transparent, not permanent and not revocable, they should not be considered as fixed remuneration, but should be classified as variable,” it said.
Role-based pay is seen by big banks as a way to sidestep the cap on bonuses imposed by the EU.
Bank bosses say the awards are vital if they are to attract top talent and compete with the pay on offer in financial centres such as New York and Hong Kong.
European authorities have made it clear that they disapprove of allowances because they flout the spirit of the EU clampdown, which limits bonuses to a maximum of twice a banker’s salary.
Andrew Bailey, deputy governor of the Bank of England, is sympathetic to the schemes, judging them the best way to deal with a bonus cap arrangement that UK authorities believe to be flawed. “The bonus cap is the wrong policy, the debate around it misguided, and the best I can say about allowances is they are a response to a bad policy,” he said.
European bonus rules were introduced in 2013 to curb irresponsible risk-taking. But the introduction of role-based pay highlights the unintended effects of the crackdown.
Barclays introduced role-based pay two years ago. The awards are handed to almost 2,000 top staff.
HSBC, Lloyds and Royal Bank of Scotland have already fixed the role-based pay of their top executives to comply with European rules.
