Europe Enacts Cap on Bank Bonuses

The European Union is moving to provide some global leadership on reining in cash bonuses for bank executives to try to curtail excessive risk taking that has lead to a global financial disaster until any in recent memory.  The European Parliament, the New York Times reports, has approved a measure capping most bonuses to 30% in cash, and for larger bonuses, to 20%.  The rest of the amount has to be in forms other than cash, and held over for up to three years.  That amount can be reduced or forfeited if the performance of the bank falters.

This is a good step, considering that the financial calamity was primarily caused by the rewarding of excessive risk-taking regardless of long term performance, as well as bonuses with no relation to performance whatsoever for executives.  The United States is not looking at legislative remedies of bonuses, however, regulatory agencies are making compensation structure part of the decision to assess fees.  The Obama Administration's Pay Czar is preparing to release a comprehensive pay review of high earners at the top financial institutions.  The President also imposed a cap on institutions that received federal bailout money last year until it was paid back.

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