Europe following Obama's Lead in Limiting Corporate Pay?

PARIS — This was supposed to be bonus season for the once-pampered bankers of Europe. Instead, it has become payback time.

With President Obama telling American executives to curb excessive pay, an increasing number of European banks are limiting or canceling the high salaries and bonuses once seen as an inalienable right.

Banks that choose not to show moderation — even the small band of banks that did not receive government help, like Barclays in Britain and Deutsche Bank — run the risk of angering shareholders, members of the public and politicians who are eager to show that taxpayer money is not lining the pockets of those whom many blame for the financial crisis.

“There’s something to be said for bankers piping down a bit and seeing where they went wrong,” said Frits Bolkestein, a former European commissioner for the internal market, summing up the mood of many in Europe. “There’s a lesson to be learned.”

“There’s no opposition to giving bonuses or high pay to people who are successful,” said Mr. Bolkestein, now a professor at the universities of Delft and Leiden in the Netherlands. “But there should be no extra money for people who have failed.”

And, in some cases, no jobs. Royal Bank of Scotland Group fired seven nonexecutive directors Friday as part of a restructuring agreement with the British government, which pumped in about $30 billion to rescue the bank.

On Friday, European governments were encouraged to follow the example of the United States by limiting executive pay at companies receiving government aid.

“The commission very much welcomes this kind of limit placed on the pay and bonuses of executives,” a European Commission spokesman, Jonathan Todd, was quoted as saying by Reuters. Such restrictions could be an extra incentive for banks to repay state bailouts.

The commission, the European Union’s executive body, has approved billions in state aid for European banks since last summer.

In Washington, Mr. Obama imposed rules early this week setting a $500,000 cap on cash compensation for the most senior executives at companies receiving aid, curtailing severance pay when top executives leave a company and restricting the cashing of stock incentives until government assistance is repaid.

Brussels has no plans for now to propose legislation on the issue, so it remains up to individual European countries to decide on limits for bankers’ pay.

Perhaps still aware of the shock caused by the trading scandals last year at Société Générale and another large bank, Groupe Caisse d’Épargne, President Nicolas Sarkozy of France used a televised exchange late Thursday to rail against the excessive rewards given to traders.

Mr. Sarkozy said he was “more shocked by the system of pay” for traders than he was for bankers’ remuneration. “That’s what you have to forbid,” he said.

Paris had announced that banks accepting the 21 billion euros, or $27.3 billion, that it has offered in aid would not be allowed to pay bonuses. The same rules will apply to the French automobile industry, which is awaiting a bailout.

The French employers’ group Medef has published recommendations that include limiting golden parachutes, or negotiated exit payments for executives, and eliminating bonuses for managers who “played a role in this disaster,” according to Laurence Parisot, chief executive of Medef.

Elsewhere in Europe, several banks have moved to limit rewards. BBVA, a Spanish bank, said Thursday that it would freeze the salaries of top executives, while Danske Bank in Copenhagen, said that it had canceled bonuses for its executive board.

Germany also plans to ban bonuses and has set a 500,000 euro limit, about $641,000, on executive pay at rescued banks.

In Switzerland, the government has proposed curbs on banking bonuses but no formal agreement has been reached.

UBS, a Swiss bank that has received state help, has said that its chairman, Peter Kurer; its chief executive, Marcel Röhner; and other members of the executive board would receive only salaries for 2008 and that all other employees would get lower bonuses.

Norwegian banking executives are taking action ahead of any government-imposed cap, promising to voluntarily freeze their salaries, while the Dutch government has taken steps to limit golden handshakes for executives leaving banking and insurance firms.

In Britain, the Royal Bank of Scotland has become a test case for the new frugality. Last month, as Prime Minister Gordon Brown introduced the latest bailout of RBS, which increased the state’s shareholding to 70 percent, he raged at the “irresponsible risks” of its bankers.

Meantime, speculation has been building that RBS was preparing to pay generous bonuses when it announced 2008 results on Feb. 26.

But Mr. Brown said Thursday that top executives at the bank had left without severance pay, while no bonuses were being paid to board members and no dividends to shareholders.

Angela Knight, chief executive of the British Bankers’ Association, said that as the dust settled after the crisis, the public’s attitude toward the sector should soften.

“Many banks, even in these turbulent times, are well run and profitable,” Ms. Knight said. “The serious problems experienced by some well-known High Street names are having an impact on how people see the industry as a whole but, as we work through the current worldwide economy challenges, the image of banks and bankers is likely to improve.”

She cautioned on the need for “proportionate and smart” regulation of banks. “We have always said bank pay is a matter for shareholders, and this is particularly the case for those banks where the U.K. government has a stake in the business,” she said.

At RBS, those executives who have survived the government-led culls are no longer finding the cosseted life they once had.

Instead of casually plunking down the company credit card, RBS bankers now must get approval before entertaining clients, and must pick up their own bills for meals on business trips.

For the moment, some European banks are trying new ideas to retain or attract talent, like deferring bonuses or offering stock options in parent companies.

http://www.nytimes.com/2009/02/07/busine...rss&emc=rss