European Union leaders will press their G20 partners to back 'sanctions' for banks that hand out excessive bonuses, according to a draft summit communique ahead of the September summit.
'The G20 should commit to agreeing to binding rules for financial institutions on variable remunerations backed up by the threat of sanctions at the national level,' the draft said ahead of a special summit in Brussels.
The text will be put to the heads of the 27 EU member states meeting tomorrow evening to agree a common position to take to the G20 summit in Pittsburgh of the world's major economies next week.
Seeking new rules that fulfil the commitment subscribed to in London in April at the last G20 summit, the EU contends that bonuses handed out in the financial sector should be tied to 'long-term performance.'
The draft calls for an end to guaranteed bonuses, with financial police given powers to retroactively slash payments where investments fail to deliver and tools to force boardrooms to control levels of high-risk speculation.
The EU leaders will also seek to block the exercising of stock options over set timeframes and end the insulation of top directors from fall-out when banks fail, following a number of high-profile payouts to failed bank chiefs.
Politicians have faced a backlash from taxpayers angry at what they see as excessive profits being made by banks that benefited from massive injections of public money following meltdown in the world's financial order a year ago.
French President Nicolas Sarkozy has threatened to walk out of the Pittsburgh talks on September 24 and 25 if serious bonus curbs are not implemented, although Washington has so far resisted heavy regulation.
While Sarkozy's proposals for capping bonuses have met with reservations in Britain, US President Barack Obama on Monday warned that Wall Street executives can no longer expect taxpayers 'to break their fall.'
EU leaders will also call on the G20 tomorrow to 'explore ways to limit total variable remuneration in a bank either to a certain proportion of total compensation or the bank's revenues and/or profits.'
British Prime Minister Gordon Brown said after a working dinner with Sarkozy last night that he was confident the G20 would agree on 'action and not words' in Pittsburgh with lavish bonuses having 'appalled everyone across the world.'
Dutch banks unilaterally imposed limits on bonuses and pay last week in what the Netherlands' finance minister said could be a model for the Group of 20 countries to follow.
In the new banking code, bonuses will no longer be allowed to exceed annual salaries as of January and salaries themselves will have to be below a median figure for comparable jobs.
