Top European Union officials have struck an agreement on a package of financial laws that includes capping bankers' bonus payments at a maximum of one year's basic salary, in a move politicians hope will address public anger at financial sector greed.
The bonuses will only be allowed to reach twice the annual fixed salary if a large majority of a bank's shareholders agrees.
Thursday’s agreement, announced by diplomats and officials after late-night talks between EU country representatives and the bloc's parliament, means bankers face an automatic cap on bonus payouts at the level of their salary.
"This overhaul of EU banking rules will make sure that banks in the future have enough capital, both in terms of quality and quantity, to withstand shocks. This will ensure that taxpayers across Europe are protected into the future," said Ireland's Finance Minister Michael Noonan, who led the negotiations for 27 governments.
Top bankers and traders may currently earn bonuses multiple times their base salary based on their performance, given that there is no legal pay limit yet. But public outrage has grown across Europe over large bonus payments to executives of banks that received huge state bailouts during the financial crisis.
Setback for UK
Such limits to bankers' pay, which is set to enter EU law as part of a wider overhaul of capital rules to make banks safer, will be popular on a continent struggling to emerge from the ruins of a 2008 financial crisis.
But it represents a setback for the British government, which had long argued against such absolute limits. The City of London, the region's financial capital with 144,000 banking staff and many more in related jobs, will be hit hardest.
Ireland, which holds the rotating EU presidency and negotiated what it called a "breakthrough", will now present the agreement to EU countries. The backing of a majority of EU states is needed for the deal to be finalised.
The final approval by parliament and government leaders of the package is expected to be a formality, although it was not immediately clear what position Britain would take. But even if London would not back the package, the remaining EU members could still force the legislation through by adopting it by qualified majority.