Monday, March 4, 2013
The new European Bonus cap
As somebody has read it in the newspapers, the European Union has suggested that there will be bonus cap on what the financial institutions will be paying in bonuses to their top executives. Although it will have to be ratified by all the states, this will have ripple effects on the financial institutions. Seemingly it is being done on the popular demand of the people who have come to see the financial institutions top executives as greedy and also due to the ongoing recession, but would it make an impact on the pay salary. Obviously the reports are coming that the bonus will be the same as the pay cap but as somebody suggested it will be easy to circumvent the bonus cap but simply raising the salary and then matching the bonus with it. Now I don’t agree with this new supposedly good law. Implementing this law in Europe will be futile since now the executives don’t have to base in Europe to conduct business and then only the European companies will be at a disadvantage vis-à-vis non-European companies when it will come to attract top talent. The top talent will also see that it is not worth the effort to work in banks and may try to switch industries. Also if Europe believes in Free enterprise than let the market take care of this problem and European bureaucrats should not be involved in telling how much the companies should be paying their executives. In a free market economy, let the shareholders and the market decide who is worth more or less. This new law will have unintended consequences not foreseen yet.