* Revised guidelines still toughest pay curbs in the world
* "Neutralisation" provision welcomed by lawyers
* More focus on role of employee, less on pay levels
* European Commission, EU lawmaker welcome final guidelines
(Adds more banking reaction)
By Huw Jones
LONDON, Dec 10 (Reuters) - Most of Europe's best paid bankers will get only 20 percent of their next annual bonus upfront in cash under guidelines finalised on Friday but some may escape the net thanks to a last-minute concession.
The stamp of approval from European Union regulators comes as banks prepare to make their annual bonus awards within days.
The Committee of European Banking Supervisors (CEBS) alarmed banks in October when it published the guidelines in draft form because they were tougher than what world leaders at the Group of 20 countries had agreed.
Bankers and lawyers said the more flexible, revised guidelines agreed by CEBS on Friday to take effect next month remain the toughest pay curbs in the world.
"CEBS has considered the feedback received and has revised its initial proposal in order to address the main issues and concerns raised, namely those related to proportionality," the committee said.
The guidelines, which came in an 86-page document, will cover the 2010 bonus round onwards.
The revised guidelines surprised bankers and lawyers by including the ability for firms or staff who take on little risk to "neutralise" some requirements.
Lawyers welcomed the less rigid criteria for deciding which types of staff should come under the net, focusing less on income and more on risk taking and responsibilities.
Bankers said compliance would put Europe's banks at a disadvantage.
"These requirements will mean that banks operating in Europe, and European banks operating elsewhere in the world, will be at a competitive disadvantage unless there is recognition of the need for a global agreement on compensation practices," said Simon Lewis, chief executive of the Association for Financial Markets in Europe, a banking lobby.
ONLY 20 PERCENT IN CASH?
The guidelines flesh out a reform of the EU's bank capital requirements which included tough remuneration curbs inserted by the European Parliament, leaving CEBS with little wriggle room.
At least 40 to 60 percent of bonuses must be deferred over three to five years, while at least 50 percent must be in the form of equity-linked instruments. All of these rules remain unchanged from the October draft.
Those top flight bankers earning bonuses of a 1 million euros ($1.3 million) or so will be limited to 20 percent of that upfront in cash -- and as little as half of that once tax is paid.
But in order meet a proportionality principle in the EU framework law, firms can "neutralise" some elements of the rules -- allowing some firms, either for all or some of their staff, to put aside the requirements on variable pay in equity-linked instruments, retention or deferral.
But supervisors must make sure that in applying this principle the objectives of the guidelines to cut excessive risk taking or a level playing field among different firms and jurisdictions are not affected.
Stefan Martin, a partner at Allen & Overy lawfirm, said the "neutralisation" provision was a significant change and could offer an escape route for brokers and market makers who act as intermediaries and not committing the firm to major risks.
"That will be seized on not just by smaller firms but across the board to try and justify why for particular employees a particular provision in not proportionate," Martin said.
DISAPPOINTING
The ability to neutralise some requirements will be useful for smaller and less complex firms who have no listing to offer deferred payment in shares, said Irving Henry, a policy director at the British Bankers' Association.
"It was disappointing there was no greater movement on the main package. Their hands were tied and they had to reflect popular and political anger," Henry said.
Britain is seen as having little choice but to move in line with the CEBS guidelines.
The UK Financial Services Authority, a member of CEBS, said it would review the guidelines and see what implications they have for its code which is being reviewed.
In July, the FSA proposed a weaker regime with 40 percent of a bonus to be paid upfront in cash with 60 percent in shares.
The CEBS guidelines still stop short of a pan-EU maximum ratio between fixed and variable pay, leaving it up to banks to decide on an "appropriate balance", in line with earlier drafts.
The EU's executive European Commission, which drafted the EU framework law, welcomed the finalised guidelines.
"We are confident that CEBS guidelines are consistent with European Parliament requirements and are very happy with that," a spokeswoman for EU financial services chief Michel Barnier said.
Arlene McCarthy, the British socialist member of the European Parliament who was key in inserting the pay curbs into the EU law, said the final guidelines put an end to Britain's attempts to weaken the rules.
CEBS, due to become a more powerful European Banking Authority from January, will study implementation of the guidelines in the fourth quarter of 2011.
Banks like HSBC and Barclays have already begun bumping up base salaries in view of the bonus curbs.
(Reporting by Huw Jones; Editing by Mike Peacock and Andrew Callus)