Absa and Investec look set to have their remuneration policies radically overhauled after last week’s EU agreement to cap bankers’ bonuses.
The agreement, which has still to be confirmed, will impose severe restrictions on bankers’ pay and is considerably worse than was expected by industry leaders. The curbs, which will come into effect next year, will apply to all EU-based banks and their international subsidiaries.
It is unclear whether it will also affect Nedbank, a subsidiary of a London-listed financial institution.
The key aspect of the curbs is that bonuses cannot be larger than the basic salary unless a shareholder vote allows an increase to a maximum of twice the basic salary.
Within hours of the unveiling of pay constraints, the European banking industry was reported to be studying ways to avoid or minimise the impact.
Remuneration experts say that the obvious way to secure generous pay packages for bank executives will be to increase their basic salary.
Bankers say this will reduce the flexibility of remuneration policies and increase the fixed cost base of banks.
Gerald Seegers, a remuneration expert with PwC, said guidelines to achieve restraint were preferable. “The problem with capping is that it is impossible to know what the consequences will be.”
However, he said if there was no evidence of self-restraint, regulation became a possibility. Seegers said South African executives across all industries were increasingly aware
of this danger.
In 2011 the total remuneration awarded to Absa’s two top executives, Maria Ramos and David Hodnett, significantly exceeded the one-to-one ratio being proposed by the EU.
Ramos’s fixed remuneration was R6.6 million and total remuneration was R20.6m. Hodnett’s total fixed remuneration was R3.4m and total remuneration was R12.4m.
At Investec, neither chief executive Stephen Koseff nor managing director Bernard Kantor received bonuses for 2012, but in 2011 both Koseff and Kantor’s basic remuneration was £425 000 (R5.7m) and their total was £3.4 million.
A spokesperson for Investec said on Friday that it would be premature to comment on changes to the group’s remuneration policy as the EU proposals had not yet been finalised.
Nedbank’s remuneration policy also allows for bonuses significantly in excess of the limits proposed by the EU.