France’s Bonus Rules: What Were They Thinking?

Talk about turning lemonade into lemons. France was poised to pick up a lot of financial service sector jobs as a result of the UK malaise and managed yesterday to convince anyone with an ounce of sense to avoid the country like the plague.

Bowing to political pressure, I assume, the government of that country imposed sweeping restrictions on bank bonus payments. The new regulations require that no more than a third of a bonus be paid out in the first year with the balance payable over the next two years. At least a third of the bonus must be paid in stock and if a trader’s department loses money in any of the next two years, the trader stands to lose part of the deferred bonus. You did read that right. Regardless of the performance of an individual trader, if his group loses money because some imbecile makes a bad bet then the trader gets hammered.

The government also added a little French pastry to the new law. They seem to realize that this is going to make working for a French bank less than optimal so they want everyone else to follow along. To incent other firms, they promise to withhold government business from those firms that don’t follow their lead.

Clusterstock pulled together a list of banks that do a lot of business with France. Here it is:

Barclays Plc, HSBC Holdings Plc (NYSE:HBC), BNP Paribas (EPA:BNP), Credit Suisse Group AG (NYSE:CS), Societe Generale (OTC:SCGLY), JPMorgan Chase & Co. (NYSE:JPM), Merrill Lynch & Co., Nomura Holdings (NYSE:NMR) and Royal Bank of Scotland Group (NYSE:RBS).

You think JPMorgan is going to comply in order to keep their French business and watch their talent walk to Goldman and others? Doubt it!

This is one of those ideas that gets cooked up in any number of meetings of government technocrats around the globe. Usually, these sorts of plans get kicked around a bit and gradually cooler heads are able to point out the consequences. Sometimes, for whatever reason, that doesn’t happen and the schemes come to fruition normally followed by an uh-oh moment. After the necessary face saving exercises the policy disappears quite quietly and everyone pretends it never happened. Look for the French bonus program to fade away soon.

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About Tom Lindmark 401 Articles

I’m not sure that credentials mean much when it comes to writing about things but people seem to want to see them, so briefly here are mine. I have an undergraduate degree in economics from an undistinguished Midwestern university and masters in international business from an equally undistinguished Southwestern University. I spent a number of years working for large banks lending to lots of different industries. For the past few years, I’ve been engaged in real estate finance – primarily for commercial projects. Like a lot of other finance guys, I’m looking for a job at this point in time.

Given all of that, I suggest that you take what I write with the appropriate grain of salt. I try and figure out what’s behind the news but suspect that I’m often delusional. Nevertheless, I keep throwing things out there and occasionally it sticks. I do read the comments that readers leave and to the extent I can reply to them. I also reply to all emails so feel free to contact me if you want to discuss something at more length. Oh, I also have a very thick skin, so if you disagree feel free to say so.

Enjoy what I write and let me know when I’m off base – I probably won’t agree with you but don’t be shy.

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