News Updates

Banker’s bonus cap

Thursday 20th November 2014

The UK Government’s legal challenge to the banking sector bonus cap has been rejected by the Advocate General to the ECJ.

The Capital Requirements Directive IV, approved by the European Parliament last April, contains provisions limiting variable pay for certain staff to 100% of salary or 200%, subject to shareholder approval. The cap applies to any variable pay awarded for performance or work done from 2014 onwards. The rules apply to all banks operating within the EU as well as to employees of EU banks based outside of the EU.

The Government challenged the cap in the ECJ on several grounds, including that it has no proper legal basis in EU law, is disproportionate and that it would be more appropriate for any action to be decided at a national level.

In an opinion issued today, the Advocate General rejected all of the UK Government’s arguments, concluding that the provisions are valid. He also stated that fixing the ratio of variable pay to basic salary did not amount to a cap on pay, as there is no limit on the basic salaries to which bonuses must now be pegged against.

The AG’s opinion is not binding, however it will form the basis of the ECJ’s deliberations, and in practice it is unusual for the ECJ to depart substantially from it. The decision is expected early next year.

All information in this update is intended for general guidance only and is not intended to be comprehensive, or to provide legal advice.