LONDON – Some European bankers making more than €500,000 a year may be able to avoid caps on their bonus compensation if their jobs do not cause potential financial risk to the bank, according to new draft rules introduced on Friday by a European regulator.
European lawmakers adopted caps this year intended to limit banker bonuses as a result of public outcry over outsize pay packages as taxpayers in Europe are still struggling to recover from the financial crisis.
Bonuses would be limited to one year’s base salary under the cap, but they could be as high as double the base salary if a bank’s shareholders sign off on the bonuses. The limits are expected to go into place beginning in 2015.
On Friday, the European Banking Authority, a London-based regulator in charge putting in place the rules that lawmakers pass, said it would propose in the final draft of the rules a potential exclusion for bankers making more than €500,000 ($687,000) a year in total compensation.
Financial institutions will have to “demonstrate that the excluded staff on the basis of the business unit they are working in, as well as of their duties and activities have indeed no material impact on the institution’s risk profile,” the banking authority said.
The authority had initially proposed that bonuses for anyone making more than €500,000 be automatically capped.
The new rules will be published later this month and submitted to the European Commission for adoption.
Under the proposed rules, financial institutions will have to notify regulators in their home countries of any employees who are to be excluded and make more than €500,000 a year. Regulators can challenge those exclusions.
Local regulators must sign off ahead of time on exclusions for employees who make more than €750,000 a year.
Britain filed a lawsuit in September at the European Court of Justice challenging the caps. London is home to the European investment banking operations of many of the world’s largest banks.
The British Bankers’ Association, which has asked that the limits be postponed, said this year that as many as 35,000 employees at financial institutions worldwide could be affected by the caps.