UK bankers earn the highest bonuses in Europe, says the European Banking Authority.
Among those earning more than one million euros ($1.36m) a year, their average bonus exceeds their salaries nearly fourfold.
With a new bonus cap coming into effect in 2014, UK bankers are heading towards a potential conflict, analysts warn.
According to the EBA (European Banking Authority), the number of EU banking staff earning more than €1 million in 2012 stood at:
- UK – 2,714
- Germany – 212
- France – 177
- Italy – 109
- Spain – 100
The UK employs more than three-quarters of all the EU’s top earning bankers.
In The City (London), capping bonuses could have a serious impact on its economy.
Substantial pay increases for top UK bankers
Among the top earning UK bankers, pay for those earning at least €1 million increased by more than one third in 2012.
The EBA described bankers’ pay in the European Union as “limited in most Member States and quite significant in some others.”
The authors wrote that after a preliminary analysis, pay structures across the EU have personnel earning €1 million per year or more in several levels and divisions of banking, including executive board members, as well as employees working in auditing, corporate finance, human resources, legal affairs, risk management, information technology, communication and internal audit.
Below is a breakdown of UK bankers earning over €1 million annually in 2012:
- Investment banking: total 2,188 employees. Average total remuneration per person €1,934,732.
- Retail banking: total 62 employees. Average total remuneration per person €1,630,981.
- Asset management: total 198 employees. Average total remuneration per person €2,126,761.
- Other business areas: total 266 employees. Average total remuneration per person €2,034,413.
- Total all sectors: – total 2,714 employees. Average total remuneration per person €1,951,572.
The European Union effort, which comes into force in 2014, sets variable pay (bonuses) to 100% of salary (with explicit shareholder approval). High-earning UK bankers in 2012 had variable pays averaging 3.7 times their base salaries (3.5 in 2011). This will clash with the European Union bonus cap.
UK banks raising monthly allowances
UK banks are trying to get around this restriction by paying their high earners monthly allowances, which are not counted as bonuses.
The EBA proposes capping bonuses on bankers earning over half-a-million euros, which could affect several tens of thousands of London employees.
In February 2013, the EU negotiated a deal that would make bonuses illegal if they were more than double an employee’s fixed salary. According to lawmakers, this would prevent exorbitant payouts and address the problem of irresponsible risk-taking.
The UK government said the caps were illegal and challenged the proposed legislation in Europe’s highest court in September.
Lawmaker Syed Kamall, MEP (Member of the European Parliament), also Conservative spokesman in the European Parliament on economic and monetary affairs, said of the UK government’s taking the EU to court:
“I welcome this move by George Osborne and I congratulate him for standing up to Brussels. This is not a question of whether or not people deserve bonuses, but of whether eurocrats should be allowed to dictate to our companies how they reward their staff.”
“The proposal to cap bankers’ bonuses is critically flawed because it will simply lead to inflexibility in the remuneration structure. Take away bonuses and basic pay goes up, meaning bankers will be paid more regardless of their performance.”
“If it takes legal action to show the EU the error of its ways, so be it.”
“Self-regulation does not work and the report illustrates why the European Parliament took the unprecedented step of inserting a hard bonus cap in the absence of action by the industry.”