Page last updated at 16:59 GMT, Thursday, 17 September 2009 17:59 UK

Bonus reform: country by country

obama and co
G20 summits are full of smiles, but the disagreements run deep

By Kabir Chibber
Business reporter, BBC News

When the Group of 20 (G20) richest nations meets this week, reform of bank bonuses will be high on the agenda.

Just over a year ago, when the US investment bank Lehman Brothers still existed, most people only heard about bankers' bonuses when it was reported that Goldman Sachs' chief executive, Lloyd Blankfein, had become the highest paid banker again (with $70m in 2007), or some salacious story emerged about bankers living the high life.

But in the fallout that followed - the subsequent recession, numerous bank bailouts and and public protests over the bankers role - has put banker compensation in the spotlight like never before.

Almost every politician agrees that the bonus culture at banks in the US and Europe led them to take risks and invest in financial products which brought their banks to collapse.

The summit this week in Pittsburgh is meant to forge a global set of rules on the issue. At their previous meeting in April in London, the group said it would clamp down on excessive pay.

But what has each country done to reform the bonus culture at its banks so far?


New rules but are they enough?

The UK's watchdog, the Financial Services Authority, has passed rules in August that state bank bonuses will no longer be guaranteed for more than a year, and that senior employees must have their bonuses spread over at least three years.

These rules come into effect in January.

The FSA's regulations on bonuses have been criticised for being too weak. And the FSA has suggested it would back down on those rules if other countries do not follow suit.

Prime Minister Gordon Brown has more recently advocated that bank bonuses should be geared towards long-term success, and said that banks should be able to "claw back" bonuses if the bank later performed poorly after handing them out.

Those proposals were backed by G20 finance ministers when they met in London earlier this month.


Compensation brought under state control

By far, President Nicolas Sarkozy has been the most vocal on reforming bonuses.

President Sarkozy
France has been the most vocal on the bonuses issue.

In August, the heads of the biggest French banks - including BNP Paribas, Societe Generale, Credit Agricole - met with Mr Sarkozy and afterwards agreed to new rules covering bonuses.

Among the new rules, guaranteed bonuses will be limited to one year. A minimum of half these bonus payments will be deferred to a later date, and a third of the deferred portion will be paid in shares in the bank.

Foreign banks in France will have to "respect" the new rules, too.

France also appointed Michel Camdessus, a former head of the International Monetary Fund, to a new role monitoring bank compensation.

He will have the ability to look at the top earners at banks, and to propose changes. If his recommendations are ignored, he can refer the bank to the financial regulators and appeal directly to the banks' boards.

Mr Sarkozy is proposing a mandatory cap on bonus payments to the G20, and his spokesman has said he will walk out if no real change in enacted at the summit.


Pay tsar but little appetite for more

US insurer AIG's decision to pay $165m in bonuses after getting $170bn in US bailout funds sparked public outrage in the US.

Leaders of the world's biggest economies will gather in Pittsburgh on Thursday and Friday for the latest G20 meeting in the wake of the global financial crisis
Our Q&A explains what to expect
See whether they are fulfilling the pledges made at the last meeting in London
This time they will be deciding what limits should be put on bankers' bonuses
For full coverage of the G20 and the global recession go to our in-depth guide

Lawmakers in the House of Representatives have voted in favour of a bill to levy a 90% tax on big bonuses from firms bailed out by taxpayers and there was much talk of clamping down on bonuses.

In truth, the legislation was never turned into law and little has been done on the issue.

President Barack Obama appointed Kenneth Feinberg as "pay tsar" - able to veto bonuses or take back money on contracts made before 11 February - at banks that took US taxpayer money, including banks like Citigroup, and at automakers General Motors and Chrysler.

He has authority over the 100 highest-paid employees at those institutions, and his decisions cannot be appealed against.

The Obama administration has put restrictions on executive pay, dividends, and capital requirements at those banks that it has a stake in.

But Mr Obama has ruled out French calls to put a mandatory cap on bonuses, saying he saw no reason why bankers should have their pay affected by legislation and not Silicon Valley entrepreneurs or sports stars.


Pay caps already passed

Netherlands banks were hit hard by the crisis, with the nationalisation of the Dutch assets of Fortis Bank.

So the finance ministry pushed the banks into forgoing bonuses in 2009, and has also prevented boards at banks from paying themselves more than what the staff were getting.

The Netherlands Bankers' Association this month passed a provisional banking code, which will take effect in January, that limited bonuses to no more than 100% of a banker's annual salary.

Redundancy pay will also be limited to one year's salary.

The Dutch Finance Minister Wouter Bos praised the voluntary code and said the rest of the world should use the rules as a model for their own banking sectors.


Reforms in progress

The German financial regulator has also passed new rules, taking effect on 1 January, making it possible for bankers to be forced to pay back bonuses if the risks they take are later deemed too high.

Banks will also have to take more regular stress and liquidity tests.

Chancellor Angela Merkel has been pushing for a new global charter for sustainable economic growth, and rules to govern hedge funds.

She has said the issue of bonuses "quite rightly drives a lot of people up the wall".

Many Germans have been disgusted with the stories of bonuses at some of their biggest banks.


Agreed on the need for change

When the G20 met in London this year, it created a new Financial Stability Board (FSB) made up of central bankers and with regulators in Basel, Switzerland, to help with implementing new global banking rules.

The FSB chairman Mario Draghi said recently regulators now have the right to oversee bankers' bonuses.

"Compensation is now fully in the realm of supervisors," he said.

They have so far proposed making sure that boards are responsible in their oversight of pay policy, and bonuses can be retrieved if a bank later gets into trouble.

The European Union, which is the 20th member of the G20, is urging "sanctions" for banks that pay excessive bonuses.

While each EU member nation is responsible for its own regulation, the body of 27 nations will argue that there must be penalties if any new rules are to work.


No bonus defenders here

Brazilian President Luiz Inacio Lula da Silva, dubbed by Mr Obama earlier this year as the world's most popular politician, has heavily criticised the "rich countries" for the financial crisis.

In March, he said that the crisis was the creation of "white, blue-eyed bankers" in the developed world.

To many people outside the financial centres of London and New York, he has a point.

Many of the other nations in the G20, including huge economic powers like Japan and China, haven't shown much interest in introducing changes to their bonus regimes.

Their banks took fewer chances and did not pay bonuses on anything like the same scale. Rather, it was foreign banks that took the biggest risks.

And, as the crisis initially spread from a collapse in the value of subprime mortgages in the US, the issue of bonuses is therefore considered more of a US and European problem.

But Mr Lula and other heads of developing nations will be more than happy to vote for new rules, on issues such as bonuses, if they think it prevent future crises from spreading.

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