Under the terms of the deal, which has been agreed by the European Parliament, fund managers will be paid no more than 30% of their bonus immediately in cash, with the rest delayed and linked to longer term performance and 50% paid in shares. For larger bonuses only 20% will be allowed to be paid in cash immediately.
The agreement also covers bankers’ bonuses but this is the first time the pay of fund managers will fall under any form of regulation.
There are concerns the new rules could badly affect London, where 80% of Europe’s fund management industry is based, although each country will be allowed the discretion to decide how long a bonus payment should be delayed.
The new rules have been agreed by the 27 member states of the EU and the European Parliament, a formal vote is due to be held next week.
However, while these rules will be seen as tough to an industry which has so far enjoyed an unregulated bonus environment, no limit has been agreed on how much can be paid as a bonus, only on its timing and the proportions that must be paid in cash and shares.
The measures are the harshest yet imposed on an industry seen by many as being excessively focused on encouraging risk and is intended to curb the short-termism which some politicians believe led to the near collapse of the Western financial system two years ago. They will also come in despite previous objection from the UK Government and the FSA which have both said they do not believe the way these financial institutions incentivise staff had any material impact on the cause of the financial crisis.
