The Executive Compensation Controversy - Fondazione Rodolfo ...

THE EXECUTIVE COMPENSATION CONTROVERSY: 24 MAY 2010A TRANSATLANTIC ANALYSISsuit and announce it would abandon option awards. Pressures to limit bonuses morebroadly mounted after the French bank Natixis SA revealed plans to pay 3,000 tradersand other employees €70 million in bonuses for 2008; Natixis had a loss of €2.8billion the prior year, and had received €2.0 billion in a state bailout package. As aresult of these pressures, on 30 March the government imposed a ban on all optiongrants until at least the end of 2010 for any bank or automaker receiving governmentassistance, and also banned bonuses not expressly linked to previously set targets. 122• On 2 April, the “Group of 20” (G20) leading economies established the FinancialStability Board (FSB) to flag potential problems in the global financial system. Thenewly formed FSB immediately issued guidelines for banking bonuses, recommendingthat bonuses should be adjusted for the risk the employee takes, should be linked toperformance, should be deferred to take account of the duration of the risks beingtaken, and should be paid in a mixture of cash and equity. 123The controversy over banker bonuses continued to simmer throughout the summer, anderupted at the end of August ahead of the 24 September G20 summit in Pittsburgh:• On 14 August, Germany’s banking regulator, BaFin, announced new rules allowing for“clawbacks” of individual compensation. 124• On 26 August, French President Sarkozy indicated that he would push for limits onbanking bonuses at the G20 summit. The UK and Germany quickly indicated theirsupport. 125 On the same day, Mr. Sarkozy announced sweeping new rules for bankingbonuses in France. Under the new rules, traders cannot receive more than one-third oftheir bonus in cash the current year. The remaining two thirds must be staggered overthe following two years, paid in part in restricted shares, and be subject to forfeiture ifthe trader’s department loses money over that time.122 Moffett, “France Faces Pressure Over Bonuses As Natixis Sets $94.6 Million Payout,” The Wall StreetJournal (March 28, 2009), p. B5; Gauthier-Villars, “Leading the News: Sarkozy, banks set new limits onbonuses --- Pay czar to monitor best-paid traders at France's banks,” Wall Street Journal Europe (August 26,2009), p. 3.123 Larsen, “Rules unlikely to end bonus furore,” Financial Times (April 2, 2009).124 Smith, “Germany's BaFin Clamps Down On Bank Risk Mgmt, Bonuses,” Dow Jones International News(August 14, 2009).125 “UK joins issue with France on bonus issue,” Global Banking News (August 26, 2009); “Germany backscalls to limit banker bonuses,” Agence France Presse (August 28, 2009); “France, Germany want bonus curbs,”The Times (September 1, 2009), p. 36.-99-