· 1 min read · Features

EU bonus cap: Ruling could put UK at disadvantage

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The UK Treasury has announced it will challenge the European Court of Justice’s decision to cap bankers’ bonuses to no more than a banker’s fixed salary or twice that level with shareholder approval. If this cap goes through, what HR challenges will it bring and will it affect retention and recruitment?

HR magazine asked two industry experts for their views. Today, Chris Roebuck, visiting professor of transformational leadership at Cass Business School and former global head of leadership for UBS, gives his view.

"Paying a bonus makes sense. You are paying for delivery after it has been delivered and not a salary before hoping it might be. There are issues with bonuses - many people get one without making a real contribution to what matters over and above a base level of performance, in particular senior management.

Part of the background for this new rule is that in Europe bankers' pay is: a) viewed as too high compared with other people - a moral judgment made here but not in Asia or US; and b) that they caused the financial crisis. Despite politicians using bonuses to divert from their responsibility - and the media hype - bonuses didn't cause it. Other factors were much more important.

This ruling could put the UK at a disadvantage to US and Asian competitors. It's not just about British banks, but also about European banks in London. Most EU countries have little or no financial services 'income', but here the sector produces more than 10% of the UK's. Also, why should shareholders not be able to do what they want to maximise the value of their own investment in their own company?

Yes, there are significant issues due to a short-termist culture in all business, especially in relation to investment and pay, but this muddled response from the EU isn't the way forward. We need to fix high-pay problems for all senior executives from all industries, not just banking.

For HR, it will make the recruitment and retention of the highest performers against US and Asian competitors more difficult, as current EU rules already do in Asia and the US. Irrespective of the evidence that more money doesn't mean better performance, bonuses in particular matter to many of these top performers. Not the amount they receive, but the relativity to their peers across the global market. We have to face the reality that a European solution won't solve a global problem."