French President Nicolas Sarkozy has piled pressure on banks to refrain from paying substantial bonuses to traders by summoning top executives on Friday to a meeting on an issue that has generated controversy worldwide.
Bank sector bonuses have long drawn the ire of authorities. Bank of England Governor Mervyn King suggested earlier this month tougher banking regulation was still required and said that some bonuses being paid to executives were "absolutely astronomic" and could not be justified.
Britain's financial watchdog warned banks last month that guaranteed bonuses that last longer than a year will break proposed rules on remuneration due to come into force next January. The FSA said in a letter to banking chief executive officers that any bonus deals of this kind agreed after a consultation on pay that began on March 18 would be barred by the new code.
Fury also erupted in Britain over news that Royal Bank of Scotland, which needed a government rescue, was paying an annual pension of £703,000 to its former chief executive officer Fred Goodwin. Months later, after a campaign that included windows of his Edinburgh home being smashed, Mr Goodwin agreed to reduce his pension, to £342,500 annually.
The European Commission unveiled draft rules on bankers' pay and hedge funds last April, aiming to quell public anger over financial market excesses but provoking sharp criticism from the industry.
The guidelines say banks should be allowed to ask for a bonus to be returned if the good performance it was based on turns out to be a sham, a step experts say will be hard to do. However, the rules have been delayed due to disagreement over how far supervisors should be allowed to intervene in bankers' pay.
France reacted to public anger over bonuses for financial traders last week by summoning bank chiefs for a meeting and telling the central bank to ensure that new rules on payouts are respected. President Sarkozy instructed top banking executives to report to him on August 25 on their bonus policies.
News even emerged that BNP Paribas had set aside €1 billion for possible bonus payments.
In Germany, the lower parliamentary house, approved a law in June which places restrictions on executive pay.
Board members would now only be able to cash in their share options after four years, not after two as at present. The new rules also make it easier for supervisory boards to cut board pay in the case of "extraordinary" developments. In addition, supervisory boards will be subject to increased liability if they approve excessive salaries for management.
Chancellor Angela Merkel called for an international ban on bonus payments to bankers if their business year was bad.
Germany's €500 billion bank rescue package included a clause saying salaries above €500,000 per year are considered inappropriate for managers in banks using the fund.
Ireland unveiled a beefed-up rescue programme for its two main lenders on February 11.
As part of the package, total remuneration for all senior executives would be reduced by at least 33 per cent. No performance bonuses would be paid for these executives and no salary increases would be made in relation to 2008 and this year.
Eye-popping Wall Street bonuses could be banned by the US government if pay packages are deemed to encourage "inappropriate risks," under a bill approved on July 31 by the House of Representatives. The bill, which would allow regulators to prohibit incentive-based pay packages, heads next to the Senate.
Passage of the bill came a day after a report that more than 4,700 bankers and traders got last year's bonus payments of $1 million or more at large banks bailed out by taxpayers.
Congress in February restricted bonuses and other forms of pay for top managers at banks and companies that got help under the government's $700-billion financial industry bailout.
Bonuses paid to executives at nine banks that received US government bailout money last yearwere greater than net income at some of the banks, according to a report by the office of New York Attorney General Andrew Cuomo.
The report said bonuses for Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co. were "substantially greater" than the banks' net income.
US Senator Sherrod Brown, an Ohio Democrat and member of the influential Senate banking committee, called Goldman "tone deaf" on the issue of compensation.