Preliminary agreement has been reached between the European Parliament and the European Commission on the limiting of bonus payments in the financial service sector. The draft measure – which has yet to be ratified by the Council of Ministers – would seek to cap bonus payments at the level of an individual’s annual salary. Bonus payments could be subject to a cap of two years salary – but only with approval from shareholders.
Such an action would, however, be beyond the powers vested in the European Union under the EU Treaty. Article 153 (5) of the Treaty 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.