EU would exceed its powers by limiting bankers’ pay

Although preliminary agreement has been reached between the European Parliament and the European Commission on the limiting of bonus payments in the financial service sector it has still to be approved by the Council of Ministers. This is generally regarded as a formality, yet does the EU have the powers to impose such a cap on variable pay levels?

According to Robin Chater, Secretary-General of the Federation of European Employers (FedEE) – and a former advisor to The European Commission. “What EU negotiators have failed to apprecate is that such an action is beyond the powers vested in the European Union under the EU Treaty. Article 153 (5) of the Treaty clearly states that EU legislative powers shall “not apply to pay”. Furthermore, even if the Council’s powers were not challenged in this matter financal institutions would remain free to increase base salaries to reward and retain key staff.”

Chater also points out that “what politicians and bureaucrats have always ignored is that high remuneration levels in the financial sector –  and especially substantial variable payments – serve to minimise fraud levels, retain talent, drive high performance and encourage continuity of employment. That is why corruption is so rife in many states where senior banking staff are badly paid. Many EU states have long coveted the City of London’s success as an international financial centre and regarded high bonus payments as its Achilles’ heel. This measure is therefore no more than an attempt to exploit the current vulnerability of the City by riding on the back of the collective jealousy of bankers’ pay in public opinion and the recent downgrading of the UK’s international credit rating.”

The FedEE is the leading organisation for multinational companies operating in Europe. It was founded in 1989 with assistance from the European Commission and has its head office in London, UK.  The Federation is a direct member organisation with corporate members throughout the world.