Europe Also Moving to Cap Bank Pay and Bonuses

Following the U.S. move to impose a pay cap of 500,000 U.S. dollars for executives at banks that seek bailouts, European nations have imposed restrictions on hefty payments for employees at financial institutions.

Outstanding performance has long presented executives with ample rewards, but this practice has been destroyed by the global financial crisis.

According to the Financial Times Friday, French President Nicolas Sarkozy said practices that allow traders to receive huge bonuses should be changed. “I’m more shocked by the system of bonuses for traders than pay for bank bosses,” he said.

Similarly, British Business Secretary Peter Mandelson warned yesterday that British banks will risk fueling public anger by handing out exorbitant bonuses.

London has announced curbs on executive pay at certain British banks, including the Royal Bank of Scotland which received state aid.

Germany in October last year imposed a salary cap for banks seeking state assistance.

Many governments worldwide have imposed pay limits for executives at companies receiving state funds to assuage public anger over state-assisted companies using tax money to pay exorbitant salaries and bonuses.

Other companies are making good use of the pay limits to lure outstanding talents who have worked on Wall Street.

Josef Ackermann, CEO of Germany’s largest bank Deutsche Bank, said, “The banking industry is a people business about who has the best talent. We’ll make an all-out effort to lure talent who do not welcome the U.S. government’s pay limit.”

In other words, certain experts say people in the financial field will be divided into the unlucky ones subject to the pay limit and the lucky ones who are not.

Jeffrey Immelt, CEO of General Electric, opposed the idea, saying, “Governments should want to have the best people on earth running these banks. I just think capping pay isn’t conducive to having that happen.”

mungchii@donga.com