Circumventing European Bonus Cap
As you'll all probably know by now the EU is capping bonuses at a 1:1 ratio with salaries. Naturally the market will not tolerate this and will find a work around; here's my idea, help me iron out the creases...
Asymmetric Redux Salaries
You're hired by a firm and the bank/you negotiate a salary, say £100K/year. The firm then sets your contractual salary at an arbitrary amount, say £10m/year, which vests asymmetrically over the year. For 11 months of the year your monthly pay would be a pro rata amount of £100K/12, so for those 11 months you'll receive £8.3K each month. Then in the final month of the year you'll be paid the balance of £10m, which would be £10m minus 11x£8.3k - HOWEVER this figure (approx £9.9m) is reduced by a percentage amount in order to calculate a "bonus". So if they want your bonus to be £100K, they'll reduce the £9.9m by £9.8m. This way you're not actually paying someone a bonus, you're reducing their salary.
didnt they learn to not fuck with financial engineers
Clearly not!
EDIT:
And this is why I got hired... From the FT -
If this goes through, this will really hurt their recruiting efforts in the US since it will apply to US offices as well. It will be hard to compete with the other BB across the street now paying significantly more.
On the other hand, if they raise base salary as mentioned several times on these boards, maybe that will be a seller point for recruiting.
Also, one needs to wonder what the European regulators will do if the European places bypass the law, that is to say whether the financial punishment is sustainable for the firm or not.
For instance, if the fine amounts to £1,000 per employee who were granted too big a bonus, then the firm will most likely keep delivering the bonuses they want to give.
Does this rule also apply for stock based bonus? Cause if so, then in your solution you are ignoring the significant tax component.
Whether that salary is paid in dollars, shares/dollar mix, or some other esoteric instrument (a la CS's PAF2), I think the principle of huge salary with assumed variable clawback is valid as per the FT.com article.
This "solution" would make for a very interesting Q4 P&L.
Not to repeat myself, but as someone with significant experience of European negotiations this is knowhere near a done deal yet. It still has to go to finance ministers for approval, and while the voting is QMV, the uk is incredibly good at buying off other member states for their votes...
I'm sure there will be a "cap" of some form, but I'd bet good money that it won't be 1:1 and they will make sure there are plenty of work arounds.....
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