French financial authorities have drawn up new guidelines governing the bonuses and salary structures of traders to curb excessive payouts and overly risky conduct, newspaper Le Monde said.
Some of the country’s largest banks had reached an agreement with financial market regulator Autorite des Marches Financiers (AMF), the Banking Commission and the treasury office on ways to rein in bonuses, it said in its Sunday/Monday edition.
A document obtained by Le Monde said the new code of conduct, to be submitted to French Economy Minister Christine Lagarde in the coming days, would apply from this year but affect traders’ bonuses from the beginning of next year.
“It aims to moderate the weight of the variable portion of pay compared with the salary so that this does not encourage unreasonable risk taking,” Le Monde said.
The move comes after French President Nicolas Sarkozy lambasted “the system of pay of those we call traders, these young people who played to speculate and whose salaries were pegged to the premium of risk.”
Sarkozy assailed the system of trader bonuses as causing “a catastrophe that we are all aware of.”
The government had forced lenders to review bonus structures as part of the conditions it set for granting state aid in the form of guarantees for lending and capital boosts in the face of the world’s worst financial crisis in decades, Le Monde said.
In a statement, the French Banking Federation confirmed it had signed up to guidelines governing pay to the financial market community and that the code of conduct agreed upon will now be presented to Lagarde.
A finance ministry official said a new system for calculating the bonuses would be put into place that would take into account “the net profit made, including costs such as risk costs and capital costs.”
The change would also do away with guaranteed bonuses designed to attract high-flying traders with a track record, which are not linked to performance.