France and Germany back UK bonus tax

BAK · 2009-12-11T03:44:48+00:00

France and Germany back UK bonus tax Boost for Brown as Goldman Sachs scraps cash payouts to top executives Ian Traynor in Brussels, Andrew Clark in New York and Jill Treanor guardian.co.uk, Thursday 10 December 2009 21.02 GMT Article history Gordon Brown claimed a victory for the government tonight after securing the support of France and Germany for its supertax on City bonuses amid signs that major Wall Street firms were attempting to prevent a similar clampdown by the Obama administration. Goldman Sachs, the highest profile firm on Wall Street, became the first to blink in the face of the public outcry over its expected handout of £14bn in pay and bonuses this year, by suspending cash bonuses for its top 30 executives. The decision, which will affect six of its executives in London, is expected to set the tone for rivals on Wall Street and could send ripples across the Atlantic. It is believed to be among the options being considered by Barclays as part of a review of remuneration. The warm international reception for Brown's bonus tax held out the prospect that the prime minister could secure a much-needed political boost, as he did when other countries followed his lead on recapitalising the banks last year. The momentum building up in Europe behind the clampdown on bonuses followed conversations between Treasury officials and those in G7 countries on Wednesday after the pre-budget report outlined the 50% tax on bankers' bonuses of more than £25,000. President Nicolas Sarkozy of France decided to follow the UK in imposing the one-off penalties on bonuses over 27,000 after weeks of feuding between London and Paris over the regulation of European markets. He had met Brown in Brussels today on the fringes of an EU summit to bury the hatchet after co-authoring an article calling for a global deal on the way banks behave. Chancellor Angela Merkel of Germany also sounded sympathetic to the British initiative. She said it was a "charming idea" and showed how others could "learn from the City of London". While a Downing Street spokesman appeared optimistic that Germany would also follow suit, senior German sources cautioned that despite the sympathetic noises from Berlin, Merkel would not, for legal reasons, be able to replicate the banker-bashing. Brown said: "I think the French agreement to support what we are doing on one-off bonuses is very important. There is a one-off national insurance premium to be paid by the City, and that will happen in France as well. "I believe other countries will now want to look at it and we have also an agreement in the international community to look at the relationship between banks and the service they owe to society. France is very supportive on that. The debate in the international community will move forward." Merkel prefers a Tobin-style tax on financial transactions, which Brown is attempting to persuade major leaders to endorse. In a letter to the other 26 EU heads of government, Brown said: "The EU should work actively with our international partners to develop proposals to ensure a better balance of risks, rewards and responsibility between society and the financial sector." The US administration is opposed to a Tobin tax but is facing calls to copy the UK's payroll tax on bonuses a move that has been greeted with concern in US banking circles. "Goldman Sachs is worried. They're worried about the public reaction to bonuses they're paying in the worst recession since the war," said Alan Charney, programme director for US Action, a union-backed campaign group. The US treasury declined to comment today on its view of Britain's tax on bonuses, although a handful of left-leaning members of Congress have called for a similar levy in the US. Total bonus payouts on Wall Street are due to rise by 40% to $26bn this year. The Obama administration has appointed a so-called "compensation tsar", Kenneth Feinberg, to examine pay policies, although his remit extends only to banks being propped up by bailout funds. Steve Hall, a New York-based pay consultant who advises American companies on devising remuneration, said there was concern at the prospect of Brown's tax gaining international impetus after France's decision to follow Britain's lead: "This is spreading this is worse than swine flu." In lieu of cash payments, the Goldman executives will receive shares. Under enhanced "clawback" powers, the bank will be able to reclaim shares from any employees found to have inflicted "material financial harm" on its businesses. And in an unprecedented move for a major US bank, Goldman will put its remuneration policies before a yearly "say on pay" vote by shareholders at its annual meetings. A Goldman spokesman said the bank had taken public opinion into consideration: "The motivation was that these are extraordinary times, that the firm has done well and that that has excited a great deal of comment and not a little criticism." Before the financial crisis hit, Goldman's chief executive, Lloyd Blankfein, was the best-paid bank boss on Wall Street, taking home $68.5m in 2007, while two of his top lieutenants earned $67.5m each. The US treasury secretary, Timothy Geithner, recently pointed out that Goldman would have collapsed had it not been for the US government's support of the industry. President Obama will host a meeting at the White House on Monday with banking chiefs including the heads of Goldman, Citigroup and Bank of America, where pay policies are sure to be on the agenda. In the City, warnings that the tax would result in an exodus of star players were matched by those insisting that the supertax would be easy to dodge.

Thread starter BAK
Start date Dec 11, 2009

BAK

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France and Germany back UK bonus tax

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