Chancellor George Osborne has conceded defeat after the EU advocate general rejected the UK’s pleas that banks should be able to give their employees bonuses bigger than their salaries.
The EU has introduced rules to cap bonuses at 100 per cent of an employee’s basic salary – or 200 per cent with shareholder approval.
But Mr Osborne has claimed the EU does not have the power to introduce this measure as it falls within the remit of social policy. He said the measures regarding disclosure of remuneration infringe the right to privacy.
Advocate general Niilo Jääskinen has recommended to the European Court of Justice that the claims be rejected.
He said: “Fixing the ratio of variable remuneration to basic salaries does not equate to a ‘cap on bankers bonuses’, or fixing the level of pay, because there is no limit imposed on the basic salaries that the bonuses are pegged against.”
In a letter to Mark Carney, governor of the Bank of England, Mr Osborne wrote: “There are minimal prospects for success with our legal challenge, so we will no longer pursue it.”
Mr Jääskinen’s opinion is not binding and a final decision will be made by the ECJ next year.
Legal view
Steven Cochrane, a partner specialising in financial services employment specialist at international law firm Pinsent Masons, said: “It’s likely that the court will follow the advocate general’s opinion.
“The prudential regulation authority has been vocal about its opposition to bonus caps and is likely to lobby for change. This could result in a complete overhaul of how the industry pays its workforce.”
