Europe set to allow banker bonus cap to hit 250 percent of salary

LONDON (Reuters) - European bankers could be paid bonuses of up to 250 percent of their fixed pay under a slight relaxation of tough new pay rules due to come in next year, as long as much of the sum is deferred for at least five years.

The European Banking Authority issued a consultation document on Wednesday detailing aspects of a "discount rate" that banks can apply under the European Union's new bonus rules.

The EU plans to cap bonuses of senior staff to 100 percent of their fixed pay, or 200 percent if shareholders approve a higher payout.

The discount rate would allow banks to pay up to another 50 percent in instruments that are deferred for at least five years.

The UK government and many banks have opposed the EU plan, saying it will see banks ramp up fixed salaries and could see staff leave London for elsewhere. The discount rate has been proposed as a modest concession.

The EBA consultation said the extra pay would depend on a complex calculation based on inflation rates, sovereign bond yields and how long the pay is deferred.

"Whilst the discount provisions may be useful ... they do not seem to be sufficient to prevent banks increasing fixed remuneration in order to stay within the bonus cap without substantially reducing senior employees' overall remuneration. This has the feel of tinkering around the edges," said Andrew Stanger, partner at international law firm Mayer Brown.

Banks are already working on plans to work around the bonus cap. Barclays is considering giving senior staff caught by the rule an additional monthly cash sum, on top of base pay and bonus, to get around the rules and avoid a permanent rise in costs, a person familiar with the matter said on Wednesday.

The EU has said the cap will apply to thousands of bankers in risk-taking positions. The EBA said it will finalise rules on who is affected by the end of March.

(Reporting by Steve Slater; editing by David Evans)