Managers’ pay under fire

European Parliament ECON Committee meeting, 21.3.2013 (EU Parliament photographic library).

The European Parliament approved on Thursday 21 March, new rules capping fund manager bonuses. Undertakings for collective investments in transferable securities (UCITS), which gather assets from ordinary retail investors and pool them to buy bonds, shares or other financial products, must from now on operate under stricter rules, to protect investors in them properly, said the European Parliamentarians. UCITS control almost €6.3 trillion in funds all over the world.

To this effect the EU Parliament decided that the variable component of a fund manager’s total salary should not exceed the fixed component salary and 50% of the variable remuneration should be paid in the form of units (assets) of the UCITS concerned. This is what the text approved by the MEPs, provides for.

Last week on another occasion the EU Parliament approved a cap on bankers’ bonuses. According to that draft law bankers’ annual bonuses must not normally exceed their annual salaries. This was the outcome of a compromise reached between European Parliament and Council negotiators. The only possible exception, allowing bonuses of up to twice the annual salary, would have to be authorised by holders of a half of a bank’s shares.

During the same week when the European Parliament introduced the cap on bankers’ bonuses, more than 68% of the Swiss voters backed in a referendum the introduction of new rules  to allow shareholders to reject pay agreement for incoming or outgoing business CEOs. The Swiss business community opposed strongly this decision, arguing it could harm the competitiveness of the country. However the traditionally conservative Swiss citizens appeared convinced that managers pay should be controlled.

Rules on executive compensation that are probably stricter tha the ones adopted by the European Parliament and the Swiss voters are to be introduced in Britain in October this year. In this case shareholders opinion will be biding and not advisory when managers pay is fixed.

It’s not by chance that one after the other all the European countries are introducing restrictions on bankers and business managers pay and bonuses. Public opinion was shocked during the past few years to see the real economy in the deepest crisis after the WWII, while at the same time bankers and business CEOs getting golden parachutes when departing and lucrative stock options and millions in bonuses when working. On many occasions all those lucrative remunerations are being paid despite the fact that the banks or business in question are  losing money, even going bankrupt or receiving huge subsidies from taxpayers.

This is a slow but sure trend. Politicians are increasingly sensitive to citizens’ anger against the huge discrepancy between the average pay for hard work in the real economy and the golden pay deals reserved for bank and business managers. Even in cases that those organisations are having mounting problems.

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