Bank bonus for this year swap with monthly allowance?

European Union

European Union (Photo credit: Wikipedia)

Just when it looked like a genius in Europe had solved the bonus problems facing talented bankers, European Union legislators and shareholders are raising doubts about the idea’s viability. Sources say that bankers found a great compensation tool to replace the million-dollar bonuses that the EU outlawed in the wake of the financial crisis. By replacing the bonuses with monthly allowances, financial institutions can compensate their talented people without breaking the new EU laws. Unfortunately, this awesome development has been met with skepticism by both legislators and shareholders.

Talent Drain
Sources say the banks are just concerned about losing their banking talent to the competition, in particular Asian and American banks. Those banks do not suffer such restrictive laws. Indeed, because of the EU laws, there is an honest perception that the competition is a little unfair.  Banks are asking politicians how they expect the EU to compete for talented bankers. Legislators are worried that the banks are developing the idea of monthly bonuses as a way to outwit the lawmakers, who use everybody’s new favorite “w” word, “work-around:” Bankers don’t like the new law and they think they can ignore it.

Clever Move

Estimates varied on the size of the monthly allowances, with sources saying it is the same compensation paid out as bonuses before the crash. The EU lawmakers prohibited banks from paying bonuses of more than double the employee’s annual salary. “Some lobbyist is very clever with this move,” a source said. “They keep their talent.”

The less than awesome aspect for ordinary employees is that banks can manipulate a monthly allowance according to the profits. If they simply increased salaries, they would be stuck with salary issues they would never get around. With monthly allowances, they determine the level and review it once a year.

Shareholder Concern
Concerned parties, including lawmakers, bankers and shareholders, are watching the move. Experts are advising shareholders that it is in their best interests not to interfere with the new allowances but to keep on eye on developments. The shareholder value may actually go down, a possibility that bankers say will not happen. Shareholders should be concerned about the bank paying themselves first with this new device. Shareholders do not want to see a weakened return on investment as a result.

In Awe
Like most ordinary people, bank employees are depressed since the crash, and no financial sector person wants their government putting limits on their earnings and pointing the finger at the talent as the cause of all their problems.
Over the past several months, employees have heard a lot about bonuses and how banks are going to get around the restrictions in the EU that are in place. Some are frankly in awe of the way the bankers can develop these devices. Some do not believe the government can stop them. That makes them feel, on the one hand, like anarchists, and on the other, deeply in awe.

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