30 Jul 2014

Bonus clawback: just moving money from bankers to lawyers?

The Bank of England confirms plans for a tough new regime for reckless bankers allowing bonuses to be clawed back seven years after they are awarded.

Under new plans, pay-outs that have already been pocketed could be reclaimed. The announcement follows a consultation launched earlier this year and the new rules are expected to come into force in January next year, in time for the next round of bankers’ bonuses.

A Treasury spokesman said: “This government has been clear that banks must act responsibly in setting their pay policies, and we have consistently taken robust action to tackle inappropriate remuneration.”

However, the move has been criticised as an “unintended mechanism” shifting wealth “from bankers to lawyers”. According to Luke Hildyard, deputy director at the think tank the High Pay Centre, clawing back bonuses has already “proved difficult”.

Speaking to Channel 4 News, Mr Hildyard said: “Obviously tighter rules making it harder for bankers to rake in million pound bonuses for cheating, conniving and reckless speculation are welcome. But most people will be amazed that these measures weren’t already in place.”

Most people will be amazed that these measures weren’t already in place. Luke Hildyard, High Pay Centre

He added: “The fact that the new rules won’t come into force until next year, and won’t apply retrospectively, feels a bit like locking the stable door after a very large pig has bolted.

“In past cases, clawing back bonuses has proved difficult, even in clear cases of negligence or wrong-doing. So there’s a chance that the new measures will serve as an unintended mechanism for redistributing wealth from bankers to lawyers.”

Mr Hildyard added that the exercise could be seen as a way to placate public anger over bankers receiving millions of pounds in bonuses despite the 2008 financial meltdown.

The biggest bonuses of 2013
- CEO -- Mike Corbat - £4.8m
Credit Suisse - CEO Brady Dougan -- £4.4m
Deutsche Bank - Co-CEO Anshu Jain and Jurgen Fitschen - £4m
Goldman Sachs - Chairman and CEO Lloyd Blankfein - £3.7m
Morgan Stanley - CEO James Gorman - £3.2m
Wells Fargo - Chairman and CEO John Stumpf - £2.4m
Barclays - CEO Antony Jenkins - £2.7m - waived
RBS - CEO Ross McEwan - £2m - waived
HSBC - CEO Stuart Gulliver - £1.8m
Lloyds Banking Group - CEO António Horta-Osório - £1.7m

The proposal follows the financial crisis and a series of scandals in recent years, such as the mis-selling of payment protection insurance (PPI), which has already cost the banking industry more than £20 billion in compensation costs so far.

The rules on clawback, however, will not be applied retrospectively, the Bank’s Prudential Regulation Authority (PRA) said. Critics warned of the risk of undermining the City by pushing talent overseas.

“We need to be careful we don’t create uncertainty which might make it increasingly hard to attract talent to London,” said John Cridland, CBI director-general.