The Culture of Bonuses Returns to French Banks

At the end of last week French President Nicolas Sarkozy issued a warning to French banks about the return of outsized employee bonuses. The warning came after news reports that BNP Paribas – France’s largest bank in terms of market capitalization -has allocated almost one billion euro or 14% of revenue in the first half of this year for bonuses. BNP Paribas had received 5.1 billion euro from the government to get through the credit crisis.

In contrast to Sarkozy’s statement, the chief of France’s central bank, Christian Noyer, said that the package allocated by BNP for bonuses are within the guidelines for banks established by G20 nations in April.

A political conflict was triggered last week after opponents on the left said that the BNP Paribas bonus plan proves that Sarkozy and the govenment have not managed to bring the banking sector under control following the collapse of the credit markets.

G20 Reshaped the Culture of Bonuses

In April, leaders of the largest economies of the world came together to reform the so-called “culture of bonuses” of the banks considered to have generated a wave of risky transactions with derivatives that triggered the crisis on the credit markets worldwide. The G20 agreement states that multi-year guaranteed bonuses should be eliminated that that employee incentives should be closely linked to the overall performance of the bank.