EU plans to push for G20 bank bonus 'sanctions'

(BRUSSELS) - European Union leaders will press their G20 partners to introduce "sanctions" for banks that hand out excessive bonuses, according to a draft summit communique seen by AFP on Wednesday.

"The G20 should commit to agreeing to binding rules for financial institutions on variable remunerations backed up by the threat of sanctions at the national level," the draft said ahead of a special summit in Brussels.

The text will be put to the heads of the 27 EU member states meeting on Thursday evening to agree a common position to take to the G20 summit in Pittsburgh, gathering the world's major economies next week.

Seeking new rules that "fulfil the commitment subscribed to in London" in April at the last G20 summit, the EU bloc's stance is that bonus pay in the financial sector should be tied to "long-term performance."

Specifically, they also want to block the exercising of stock options over set timeframes and end the insulation of top directors from fall-out when banks fail, following a number of high-profile payouts to failed bank chiefs.

French President Nicolas Sarkozy has threatened to walk out of the Pittsburgh talks if the discussions on bonuses do not bear fruit, although his proposals for capping bonuses have met with reservations in Britain and the United States.

US President Barack Obama said on Monday that Wall Street cannot return to high-risk operations and expect "taxpayers will be there to break their fall," although experts expect resistance in Washington to heavy regulation.

The final text from Thursday's EU dinner summit can change, but the draft already goes further than a deal reached between G20 finance ministers at a preparatory meeting in London on September 5.

There they called for "global standards on pay structure... to ensure compensation practices are aligned with long-term value creation and financial stability," including the "effective clawback" of payments.

On top of the shift towards concrete punishment, EU leaders will also call on the G20 to "explore ways to limit total variable remuneration in a bank either to a certain proportion of total compensation or the bank's revenues and/or profits."

Elsewhere, they want to see budget deficits reduced as countries go about withdrawing the monetary props that have been required to stabilise the global financial system after it went into meltdown a year ago.

"Fiscal policies must be reoriented towards sustainability," the draft statement said.

A re-configuration of the powers behind the International Monetary Fund, as part of an overhaul of post-World War II institutions to offer a greater role to emerging economies, is also high on their agenda as well as negotiations on funding the fight against global warming.

Massive executive bonuses have generated public outrage in many Western countries, where many failing banks have been bailed out by public funds, and have become a flashpoint issue for the G20 leaders to address in Pittsburgh, Pennsylvania on September 24-25.

Dutch banks unilaterally imposed limits on executive bonuses and salaries last week in what the Netherlands' finance minister said could be a model for G20 action.

According to a banking code published by the Netherlands Bankers' Association (NVB), banking executives in the Netherlands will from January 1 have bonuses limited so as not to exceed their annual salaries.

Salaries will have to be below a median figure for comparable jobs, bonuses may have to be returned if the bank runs into trouble and dismissal pay cannot be higher than a year's salary, the new code said.

Executive board members will also be prevented from exercising stock options within three years of receiving them.