The European Parliament may ease a planned ban on fund-manager bonuses that top fixed pay if investors get to vote on the larger awards, bringing the rules closer into line with ones approved today by national ambassadors on how much bankers can be compensated.
The parliament’s economic and monetary affairs committee approved a ban last week on fund-manager bonuses higher than salaries as well as curbs on performance fees in a 22-16 vote. Legislators plan talks on the draft rules for managers of so- called UCITS funds ahead of a vote by the full assembly in May, said Sven Giegold, the lawmaker leading work on the standards.
If the fund industry came up with a clear solution to ensure investors got a vote on pay, “I would welcome that,” Giegold said in an interview. “I would be very happy to include that in the legislation. It would be a boost for shareholder democracy.”
The draft rules for fund managers go beyond planned EU curbs on banker pay that won approval from national representatives today despite U.K. opposition. Those measures allow bonuses of as much as twice a banker’s fixed pay if shareholders agree. The financial industry has warned that both sets of plans could drive up fixed costs and harm European competitiveness.
“This move to limit the bonuses of fund managers is deeply damaging, as it will lead rewards to be less connected to performance,” said Philip Booth, professor at London’s Cass Business School. “EU lawmakers simply do not understand the financial and economic implications of the measures that they are proposing. It is difficult to predict the damage that this will cause as, no doubt, a lot of money will be spent on trying to ensure that these pay curbs are circumvented.”
Under the rules for bankers, bonuses higher than fixed pay would need approval by two-thirds of shareholders taking part in the vote, with this threshold rising to 75 percent if fewer than half of shareholders are present.
“We’ve made clear that we cannot support this agreement,” a U.K. diplomat said in an e-mailed statement. The plans will lead to “increases in fixed pay for bankers, making it more difficult for banks to retain capital in a downturn.” The U.K. lacks the power to block the measures, which are scheduled to apply to bonuses starting in 2015.
Giegold said he could support a similar two-to-one pay rule for UCITS if a practical solution could be found for how to organize a vote by fund owners on the awards.
“Nobody has explained me so far how to organize a shareholder conference of a UCIT,” he said.