LONDON (Reuters) - European Union banking supervisors will thrash out binding rules to determine the balance between fixed salary and bonuses in a banker’s pay packet, a senior regulator said on Thursday.

A Lloyds bank branch sign is seen near St Paul's Cathedral in the City of London, July 23, 2010. REUTERS/Andrew Winning

The EU introduced a law this month to curb excessive bonuses amid public anger over huge payouts made by the banks, many of which were bailed out by taxpayers during the financial crisis.

It was up to each firm to fix a maximum ratio and the EBA will not propose a set ratio, Jo Swyngedouw, chair of the European Banking Authority’s remuneration working group, said.

In Britain, banks such as HSBC HSBA.L and Barclays BARC.L have raised the fixed part of bank pay in what they say is an essential move to retain staff.

“The European Banking Authority will begin preparing binding technical standards on the criteria to determine the ratio between variable and fixed pay,” Swyngedouw told Reuters.

The bonus season for 2010 is now in full swing and Swyngedou said the EBA will study in the second half of the year how well the EU law has been adhered to, so that any lessons can be applied during the 2011 bonus round.

Swyngedouw said it was best to complete this study before detailing binding rules on achieving the “appropriate” balance between fixed and variable pay. The study will look at how supervisors and firms implement the rules.

The British government has warned banks to moderate bonuses and earlier this week the EU’s financial services chief Michel Barnier called on them to act morally and responsibly, saying he would be checking on their compliance with the bloc’s rules.

Under the rules, top bankers will only be allowed to have 20 percent of their bonus upfront in cash, with 40 to 60 percent of the package deferred over three to five years.

BETTER BALANCE

David Raikes, manager of the Financial Services Authority’s remuneration team, told Reuters the ratio of bonus to fixed pay had increased in recent years and that steps by banks to reverse this were welcome.

“We are happy to see a move to a better balance,” Raikes said.

New EU rules from the start of January impose the world’s toughest curbs on excessive bank bonuses in Britain and the other 26 member states.

Raikes said the FSA was focussing on implementing the rules at the top 26 lenders who had been the subject of the UK watchdog’s previous remuneration code.

“We are engaged in discussions with the Tier 1 firms. They are ongoing and that is our main focus,” Raikes said.

The top firms have to comply with the rules from January 1, while smaller firms will have more time and will only have to “self assess” their compliance and be ready to make this available to the FSA on request, Rilkes said, adding it was too early to comment on how the rules, which affect 2,500 financial firms operating in Britain, were being applied.

The FSA will meet with chairs of lenders’ remuneration committees in the autumn to review implementation in the UK.

The EU rules are tougher than remuneration principles agreed at the global level by the Financial Stability Board and which are being applied in rival financial centres in the United States and Asia.

“One of the biggest concerns (of industry) is super-equivalence with the FSB. There should be sufficient pressure on the FSB to take implementation of their own standards seriously,” Swyngedouw said.

Raikes said more work was needed on the inclusion of debt-like hybrid capital in the non-cash portion of a bonus.

“They must be comparable with shares in terms of loss-absorption capacity,” added Swyngedouw.