EU Bonus Restrictions 'Quietly' Take Effect
Beginning next weekend, a new law goes into effect aimed at significantly limiting the bonuses that are paid to the top-level employees at banks, investment firms, and publicly traded companies.
The reform, required by the EU, aims to curb unreasonable risk-taking by financial institutions to attain short-term profit - one of the pins that bursted the global financial bubble. But the Finance Ministry, ETV reported, not only left the concerned parties out of the legislative process - allegedly, they haven't even been properly informed of the big changes.
"[The aim is to] guide [companies] so that risks are taken in the long term [...] so that the motives or financial targets of the managing members would be similiar to those of shareholders and investors," said Reimo Hammerberg, a lawyer at the Sorainen Law Offices.
One of the main provisions is that bonuses can no longer be awarded for performance in a single year; there is a minimum three-year performance period. Second, at least half of the bonus must be paid from either the firm's stocks or options, and larger investment firms and banks are required to create special committees to determine the size of bonuses. Businesses have also been given the right to decrease or even take back bonuses for a sharp decline in performance.
Companies now have a few months to overhaul contracts, negotiate with employees and settle tough disputes. But the business community is saying that the law was drawn up in the quiet of the Finance Ministry's cabinet. Kuldar Leis, CEO of the publicly traded company Premia, only heard the news from ETV.
"Apparently this job has not been done by the lawmaker. If [the deadline] is to come in three months, then it will be very complicated for the business," said Leis.
The same reforms were made in Sweden a few months ago. "The greatest challenge in Sweden was to identify the staff categories, which will be especially eligible for this new legislation, the so-called identified staff. Also the concept of variable pay has been quite debated in Sweden," said Johan Sandgren, a consultant at Novare Consulting.
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