The complex equation that would mean limiting bank salaries even with the ‘permission’ of the ECB

The bankers defend that their salaries are already highly regulated while the Government criticizes these remunerations.

The Vice President Nadia Calviño, José Ignacio Goirigolzarri (CaixaBank) and Carlos Torres (BBVA).

The possibility of limit banking salaries It has gone from being a hypothesis to gaining more strength every day. Although the Government has no plans to take measures in this regard until the CaixaBank and BBVA Employment Regulation Files (ERE) are finished negotiating, the bankers have already defended their vision on an issue that raises the ghosts of remuneration control that brought the financial crisis.

The repeated messages from the Executive that the salaries of banking managers are “high”, “striking” and “unacceptable”, especially when they are negotiating collective dismissals, have received a response from the first swords of the sector these days.

The banking response has been unanimous: the salaries of managers in the sector are already regulated and, probably, they are the most regulated in the entire business sector. Jose Antonio Alvarez, CEO of Santander, added a few days ago to the explanation that the limits that their salaries already have put them at a disadvantage compared to bankers from other geographies in which their bank is present and in which these types of controls do not exist.

Onur Young, its counterpart in BBVA, defended, for his part, that companies compete for talent not only within their sector, but also with others and in comparison with different countries.

In Sabadell, César González-Bueno, added that the sector understands “the sensitivity” of the Executive with this subject, but that the salaries of the bankers go through the filter of the supervisors, the boards of directors and the meetings of shareholders (and, therefore, of the proxy advisors).

A complex regulation

The Government, however, as published by Invertia, is going to continue exercising public and private pressure while the negotiations of the ERE of CaixaBank and BBVA last so that the entities improve the conditions and reduce the announced dismissals, while it will continue with its intention to limit the salaries of top managers in the sector.

This debate reminds the financial system of the regulation of the salaries of the directors of the rescued entities that was imposed after the financial crisis. This was the case of Bankia, where its managers, including Jose Ignacio Goirigolzarri, had their salaries capped for years.

José Ignacio Goirigolzarri, president of CaixaBank.

José Ignacio Goirigolzarri, president of CaixaBank.

“The government does not have capacity, who does is the regulator, which in this case is the European Central Bank (ECB) (…) would have to find a way to intervene that is not easy except for rescued banks”, says the economist Xavier Santacruz.

In your opinion, “It is a very complex issue from the point of view of competition and regulation.. It has to have a justification in that there was a counterpart with public money”. And he adds that “the salaries of bank executives in Spain are quite moderate compared to other countries (…) they are even lower in the case of fixed remuneration.” The sector also defends that they are in line with their peers.

The opinion of the ECB

However, as published a few days ago Information, the Government would be working on the design of a regulation with the force of law to limit the salaries of bankers, for which it could be based on a pronouncement issued by the Governing Council of the European Central Bank (ECB) two and a half years ago.

This opinion was published in response to a request from the Government of the Netherlands in relation to the draft of a law where he was working.

This Dutch law established that entities considered systemic (to put context, it is a consideration that only Santander, BBVA, CaixaBank, Sabadell and the former Bankia have in Spain) would be obliged to receive the approval of the Minister of Finance when carrying out any increase in the basic fixed remuneration of its directors.

According to the draft of this Dutch law, your Ministry of Finance could refuse to consent to a fixed remuneration if it considers it “inappropriate”.

The president of the European Central Bank, Christine Lagarde

The president of the European Central Bank, Christine Lagarde
ECB

In its response, the ECB ruled that the Dutch Finance Minister could “assess the appropriateness of a basic fixed remuneration for new or existing directors individually with a cautious, controlled and sustainable remuneration policy taking into account the broad consensus that exists in society”, but “as long as” it does not interfere with the powers of the ECB, among which is supervising that banks have “robust governance arrangements”.

In any case, the institution that presides over Christine Lagarde added that “Member States should refrain from putting up obstacles both to uniform supervisory practice and to the exercise of supervisory discretion by the ECB within the Single Supervisory Mechanism (SSM)”.

Regulation

In any case, the variable remunerations of bank executives, which are usually granted in the form of shares, are already regulated for discourage excessive risk taking by the managers to move the price of the listing, so that they do not benefit from it.

Likewise, with the arrival of the pandemic from the European Banking Authority (EBA) a call was made for prudence in the payment of bonuses and, in fact, the top executives of the big banks (Santander, BBVA and CaixaBank, among them) lowered their salaries, something that did not happen in other sectors.

In the case of Spanish banks, taking a “normal” year as a reference, 2019, before the salary cut due to the pandemic, the top executives of the large banks received between 1.4 and 9.95 million euros, each one depending on the size of your entity.

That same year, Ignacio Sanchez Galan, president of Iberdrola, received 10.43 million; Florentino Perez, president of ACS, 6.83 million, or Paul Island, president of Inditex, 6.2 million.

Some managers have remunerations that are paid after a few years, after meeting objectives, which increases their salaries, as happened in 2020 with Jose Manuel Entrecanales, president of Acciona, who, after formalizing the payment of a long-term incentive plan accumulated in five years, pocketed more than 35 million euros at once.