EU regulators mull cap on bankers’ bonuses

According to reports, the 27 member Committee of European Banking Supervisors is about to recommend a formal limitation to the size of bankers' bonuses and all the signs are that the cap would take the form of a multiple of basic pay. The most often mentioned figure in this regard is 20 times the basic pay. 

The bonus row is already in its third year and there are no signs of any real action from the banks themselves. Meanwhile, the annual Centre for Economics and Business Research (CEBR) bonus survey predicts a return to pre-crash levels of reward for bankers, and analysts say it is hardly surprising that the regulators have thought it fit to step in. 

Also there can be no doubts about which way the political and public sentiment is swinging and observers say the perhaps the only people who do not seem to get this are the bankers themselves. For the bankers any official interference in the matter remains absolutely unacceptable. 

However, according to analysts, notwithstanding all this the biggest question  is whether such a cap would work?

Also it is not at all clear that it will. They say it all started in September 2008  with mega-bonuses coming under fire not in themselves but rather because of the way they were applied. Huge payouts were given for insanely risky trades that, for the short-term looked good but turned out to be disastrous in the medium to long-term.

According to analysts there is a structural risk that can arise from bonus schemes as it is not the size of the payout that really matters in macro-economic terms, it bankers have to do to get it. A huge payout may well be perfectly affordable, if it has been adequately tied in to long term performance measures.