Bonuses: EU lawmaker dismisses UK legal action

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The European Union politician behind controversial legislation to cap bankers' bonus payments dismissed the U.K. government's plans to mount a legal challenge on CNBC Thursday.

The row over banking regulation and bonus caps in the European Union took another turn Wednesday with the U.K. announcing it was taking legislation limiting bonuses to a maximum of twice basic salary to the European Court of Justice.

Philippe Lamberts, a Belgian Member of the European Parliament on its Committee for Economic & Monetary Affairs, told CNBC that it is not for the ECJ to judge the legislation. He argued that opponents are motivated by "self-interest" and that it is "fiction" that bonuses are linked to performance.

Politicians' "unwillingness to tackle too big to fail" made bonus caps necessary, he added.

Banking bonuses have become the focal point for much of the anger around the credit crisis, and are now causing international fallout.

Under the law, bonuses will be limited at a maximum of a banker's base annual salary and will only be allowed to reach twice the pay if a large majority of a bank's shareholders agrees.

(Read more: UK challenging EU in court)

Not only does this new bonus cap affect all of Europe's banks, but it'll also cover European units of foreign banks and EU banks' staff working overseas _ such as in New York

The U.K.'s Chancellor of the Exchequer, George Osborne, argued that the restriction on bonuses would merely lead to increased basic salaries for bankers – and therefore higher fixed costs for banks.

Financial services are key to the U.K. economy, with the banking sector alone contributing £21 billion ($33 billion) to its tax take in the 2010-11 tax year. It has a larger banking sector than any other EU country apart from Germany, and banking bonuses were credited with buoying the housing market and the luxury goods sector during the boom years.

The UK's action is a "significant step," according to Alex Beidas, employee incentives lawyer at Linklaters.

Should banker bonuses be capped?

Bonus pools have shrunk significantly at investment banks,and there is evidence that fixed salaries have risen, but not to the extent that they are replacing the bonuses of 2006-07, according to analysis by consultancy PwC. Banks and other companies appear to be more focused on long-term incentive plans.

(Read more: Executive pay: Bonuses down, pay freezes up)

The U.K. could also argue that some of the treaties which are fundamental to the existence of the EU should stop regulation of pay, Alexandria Carr, regulatory lawyer at international law firm Mayer Brown, explained.

"The Treaties expressly prohibit the EU regulating pay as part of social policy and so it could be argued that the remuneration provisions of CRD IV (the EU's legislative package covering prudential rules for banks) infringe this provision," Carr said.

" The counter-argument, however, is that the provisions do not regulate total pay and are a risk-management tool which build upon the (unchallenged) remuneration provisions of CRD III."

The legislation, which is due to come in on January 1, 2014, may now be delayed in the U.K..

The British voted against the legislation, known as CRD IV, when it came before the European Parliament, but the protest vote was not successful. This is the third time the U.K. has tried to legally challenge financial services legislation in recent years.

(Read More: Why the UK would be most affected by bonus cap)

Since the onset of the financial crisis in 2008, there has been a significant backlash across Europe against perceived excesses in executive pay at banks and elsewhere. The rise in high-profile shareholder rebellions at companies from AstraZeneca to WPP last year was one manifestation of this.

- By CNBC's Catherine Boyle. Twitter: @cboylecnbc