Eurogroup urges restraint over ‘excessive’ corporate bonuses

Eurozone finance ministers on 13 May heavily criticised the practice of presenting top managers with big bonuses and severance payments at a time when ordinary Europeans are being urged to push only for moderate wage increases.

It is “scandalous” and “no longer acceptable to have situations whereby certain top managers have excessive salaries and also benefit from golden parachutes, payments which have no relationship to their performance,” said Luxembourg’s Prime Minister Jean Claude Juncker, who chaired the ministerial meeting. 

He said that the group agreed to “continue to look at ways to fight these excesses through taxes and other ethical approaches”. 

The Commission first began looking into excessive executive pay packages four years ago, but only a few countries have taken action thus far.

The Netherlands has led the way on limiting so-called ‘golden handshakes’, with legislation being prepared to tax such pay-outs at a rate of 30 percent for people with annual salaries of over half a million euros, given that the bonus is greater than the salary.

In France, lawmakers last year set a one million euro ceiling under which golden handshakes are tax-deductible for companies and also tightened stock option rules. 

French Finance Minister Christine Lagarde said that the real problem was the opaqueness with which such executive pay arrangements are drafted.

“We want to implement […] transparency in these matters so that actors can take their responsibilities,” she said.

The ministers received unexpected support from Germany’s President Köhler, who criticised the irresponsibility of bankers and “bizarrely high salaries”. He told the German weekly Der Stern that “the financial markets have turned into a monster which has to be contained”. 

His remarks came as a surprise since Köhler, who previously served as the world’s main financial watchdog as director of the International Monetary Fund (IMF), had thus far been criticised by leftist parties for his neo-liberal views. 

Any attempt to curb salaries or bonuses granted to CEOs is likely to be met with strong resistance by EU countries like the UK, as the move could threaten the position of London as the heart of Europe’s financial industry. 

The eurozone finance ministers, who were joined by their colleagues from the other EU member states on 14 May, also addressed the issue of growing deficits in several member states, which is threatening the bloc’s objective of balancing the budget. This should be acieved by “2010 at the latest,” wrote ministers in the Berlin Agreement of April 2007. 

Italy, Portugal and France are currently the countries causing most concern, according to a recent report by the Commission, which announced yesterday (14 May) that it will be issuing a formal warning to Paris about its deteriorating finances on 2 June. 

Acording to Commission forecasts, France’s public deficit is projected to rise to 2.9% this year and hit the 3% mark in 2009, which is the maximum allowed under the terms of the EU’s Stability Pact (EURACTIV 29/04/08). France has criticised the Commission’s forecasts as being too negative. 

The warning would be particularly embarrassing for France as it takes over the EU Presidency in July. 

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