Risk-takers may soon face longer wait for bonuses
SENIOR hedge-fund and private-equity managers face longer waits for bonuses under proposals from the European Union's top markets regulator.
Bonuses for risk-taking employees should be withheld for a certain length of time to align managers' interests with the long-term performance of the fund, the European Securities and Markets Authority said.
"The proposed remuneration guidelines for alternative investment funds are an important step in creating a single EU rulebook by ensuring the consistent application" of bonus laws approved by ministers, Steven Maijoor, chairman of the Paris-based ESMA, said in an e-mailed statement.
Payouts for managers at financial firms have been under scrutiny from regulators and lawmakers since the fall of Lehman Brothers in 2008. Bob Diamond, chief executive officer of Barclays, said this week he would forgo his bonus after it was fined $451m (€363.19m) for submitting false London and euro interbank rates.
European finance ministers in 2010 approved a law, known as the Alternative Investment Fund Managers Directive, which gave the ESMA power to set rules for hedge funds and private equity firms, regulating their pay and access to EU investors. Member states have until July 2013 to implement the directive.
National authorities should judge whether the bonus retention periods proposed by hedge funds and private equity firms are sufficient, the ESMA said.
Hedge funds and private equity firms have until September 27 to comment on the ESMA's proposals, which also include provisions for firms to set tougher frameworks determining severance pay for risk-takers to avoid a "heads I win, tails I still win approach to risk," the agency said.