Rumour had it in London that the Committee for European Banking Supervisors was going to be announcing the final version of its bonus rules
today. This turns out to be wrong.
CEBS members are meeting in London tomorrow and Friday to discuss and endorse the new code. A spokeswoman for CEBS informs us that the rules will not be published until Friday evening at the very earliest. If they are not published on Friday evening, the world will have to wait until Monday.
This would leave only 10 working days and one weekend before Christmas for the FSA to incorporate the CEBS rules into rules of its own and for banks to apply the FSA rules to this year's bonuses - due to be announced in early 2011.
Jon Terry, head of compensation at PricewaterhouseCoopers says the delay is unusual and suggests there are a number of issues which need to be resolved between European regulators before the rules can be released.
Maybe the rules will be toned down as a result? Bloomberg thinks not.
Objections raised so far
Buried deep on the CEBS website is a handy list of all the objections which have been raised to date.
Most of these focus on the fact that it's wrong to specify a definite proportion of fixed and variable pay, that the implementation schedule is crazily unachievable, and that the CEBS guidelines are completely irrelevant for hedge funds.
Here are some of the key points expressed:
European Association of Cooperative Banks: Implementation by Jan 1st is totally unfeasible.
Alternative Investment Management Association: Hedge funds should be excluded from any strictures on the proportion of fixed vs variable pay; hedge funds should be excluded from any strictures on deferrals; partners in hedge funds will have to pay tax upfront on their profits, but won't receive those profits immediately under the proposed rules; hedge funds can't pay equity because they're private partnerships; the high water mark concept already ensures hedge fund pay is aligned with investors' needs.
McLagan: "If an institution calculates bonuses over a three year period with sufficient adjustments to ensure that paid out bonuses do not relate to subsequent tail end risks the need for a deferral on those bonuses should no longer exist."
And: "...the strong emphasis on equity (80% for top variable earners) can lead to the
unintended effect that they care more about the immediate share price than about the long term profitability of the firm."
Artemis: In a partnership, it's not possible to reduce variable compensation because variable compensation (AKA profits) constitutes the partners' pay.
British Bankers Association: The rules shouldn't apply to bankers working overseas; restricting guarantees to poaching banks and banning guarantees in buybacks will create a 'poachers' charter'. Any reduction in variable compensation will reduce firms' ability to apply risk measures to pay and seems somewhat counterintuitive...