BANKS in London are sidestepping European bonus laws by using new terminology such as "allowances" and "reviewable salary" for one-off payments to employees.
Since the global financial crisis in 2007, regulators around the world have tried to curb excessive risk-taking by reigning in banker bonuses, the New York Times reports.
The European Union's laws are regarded as some of the most stringent, limiting bonuses to one or two times an employee's salary.
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But banks in London including Goldman Sachs, Bank of America, Merrill Lynch and Barclays are circumventing legislation with semantic redefinitions of bonus payments, including euphemisms like "role-based pay".
"These are bonuses in disguise," says Philippe Lamberts, a Belgian European Parliament member. "I wonder how they will hold up in a court of law."
Goldman Sachs made "role-based" payments of $383,373 per employee on average in 2013, as profits increased by five per cent on the previous year, the Evening Standard reports. The payments are understood to based on a model similar to one set up by Barclays, with payments made in monthly instalments.
Politicians and banking executives in the UK, who oppose the limits, argue that the caps will only serve to damage European banks by forcing them to pay more to employees in annual salary, increasing fixed costs. Bankers in Hong Kong, New York and Singapore, meanwhile, do not face similar restrictions.
"It makes London less competitive against the US and Singapore and anywhere outside the EU," says Stephen Brooks from the PA Consulting Group in London. "That's a disadvantage to the EU."
The British government has a vested interest in defending bankers' bonuses, reports the New York Times, which says 60 per cent of payments end up in the UK treasury thorugh tax and national insurance.
Some argue that bonuses form a healthy incentive to bankers and traders. Shareholders, in particular, are expected to protest the removal of incentivisation schemes.
Andrew Bailey, the chief of the Prudential Regulation Authority, says that limiting bonuses will only serve to "institute an unhelpful culture of banks spending their time finding ways around the rules".
The European Commission has the power to investigate non-compliance, and bring cases of abuse to the European Court of Justice.
"We expect all banks to comply strictly with European rules on bonuses, and continuous talk about how to circumvent the rules is disturbing," says Michel Barnier, European Commissioner for Internal Markets and Services.
