Niilo Jaaskinen, an advocate general at the European Court of Justice (ECJ), has this morning said that the court should reject the UK’s challenge to its cap on the banker bonuses.
Tom Gosling, head of PwC’s reward practice, said: “This won’t come as a huge surprise for the banking industry. It seems unlikely now that the Court will overturn the Advocate General's Opinion, so banks should continue planning on the basis that the bonus cap will still be in force next year. It's probably cold comfort for many, but at least one of the many sources of regulatory uncertainties for banks’ pay seems to have been removed.

“The bonus cap alone is too blunt an instrument to curb risk taking in the banking industry and brings with it many unintended consequences, particularly an increase in fixed pay and a reduction in the level of bonuses available for clawback in the event of future prudential or conduct issues. Bonus levels in the industry needed to, and have been, coming down, but in our view other remuneration reforms are more effective at curbing risk. “It's unlikely that the bonus cap itself causes existing business to up sticks and move away from London. However, it does make London somewhat less attractive as a place to build new capability, and so the impact is likely to be felt over a number of years rather than immediately.”

“Throughout the debate on bankers’ pay there has been too much focus on pay mechanisms and not enough on measuring performance and asking what it is that people get paid for in the first place. We need a period of stability on pay structure rules so that banks can focus their time on the important question of how you measure performance and behaviour in a way that enables banks to flourish but with acceptable risk.”