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Europe – Pay curbs criticised by recruiters

07 March 2013

Switzerland last week voted against excessive executive pay with 68% of Swiss voters backing proposals to cap executive compensation. This will allow shareholders to veto executive remuneration.  Golden handshakes will be banned and anyone breaking the rules may face prison. 

The European Commission now plans to propose such Swiss-style pay curbs with officials working on a first draft to apply similar rules. These would apply to all 27 member states of the European Union. 

Recruiters have already voiced their concerns over the pay caps. Patrick De Maeseneire, CEO of Switzerland-based Adecco, said that there had been some cases of “excessive” pay. But he warned that compensation had to remain “competitive.” 

Analysts also said that pay curbs could harm businesses. When contacted by Staffing Industry Analysts, Adecco refrained from commenting on whether the regulations would have a major impact on the firm. 

Criticism has also been fierce from the UK with critics warning that the country is set to become “zombie” land if European legislation goes ahead on curbing not only executive pay at publicly listed companies, but specifically at capping banker’s pay.  

Adrian Kinnersley, managing director of Twenty Recruitment, said that capping bonuses will have a number of negative effects. “For one thing, banks will increase base salaries in order to compensate the talent they want to keep – that’s actually bad for the bank as it will stop them keeping their fixed costs low and reduce the flexibility of their overall cost base.  It will also mean a haemorrhaging of talent out of Europe – people will leave for the higher paid opportunities in the US [and] Asia.” 

Mr Kinnersley said that many banks may see this as an unnecessarily invasive move given that they have already taken steps to control compensation levels with long term incentive plans. “This will be seen by many organisations as the final regulatory straw and encourage institutions to relocate their headquarters overseas and take talent, tax revenues and income with them,” he said. 

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