A lot of people don’t enjoy election campaigns – but here’s one reason I do: the quality of Lib Dem press releases sky rockets. Today’s announcing Liberal Democrats’ five point plan to tackle bankers’ bonuses is a case in point: punchy but detailed. So good, in fact, I’m simply going to hit the copy ‘n’ paste key …
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Background
The UK banks owe their very existence to the British taxpayer. Some banks such as RBS, Lloyds-HBOS and Northern Rock have received direct taxpayer bailouts, yet all have benefited from the explicit guarantee that none of them will be allowed to fail. Despite this, too many banks think it is acceptable to return to business as usual. Bonuses are already being paid out by all the major banks regardless of the fact that some of them are still making losses.
The bonus system was in part responsible for the financial crisis that hit the entire globe. Bonuses based on short term performance actively encouraged bankers to put short term profit far ahead of long term stability and growth. It encouraged bankers to create complex products to drive up profits, to lend to people who would be unable to pay the money back and to launch takeover bids of other banks regardless of the consequences.
After the billions of pounds that taxpayers have provided in support of the banking system Liberal Democrats know, people are simply not prepared to see the return of bumper bonuses – especially if they’re paid out irrespective of the success of the bank.
Liberal Democrat Proposal
The Liberal Democrats will ensure that the bonus system can never again encourage banks to behave in the way that led to the banking crisis. Ultimately our plans to break up the banks and make a more competitive banking industry will bring an end to the excess profits of the investment banking system and with it the massive bonus payouts. However, the Liberal Democrats also have a five point plan to tackle bankers’ bonuses quickly. This is:
No cash bonuses – We will require all bonuses in excess of £2,500 to be paid in shares. These shares will only be redeemable after five years; it will be written into the right of entitlement of these shares that they will revert to the company if they are pledged or used as security prior to the date of their redemption.
No bonuses at board level – We will ensure there are no bonuses at the board level of banks. This is not to say that board directors should not be well paid, but that they should have the long term interests of a company at heart – bonus payments do not encourage this.
No rewards for failure – We will extend the Financial Services Act to ensure that no regulated institution which has made a loss can pay discretionary bonuses.
Total transparency – We will require the publication of the names of all bank staff that have salaries and bonuses that are greater than the Prime Minster’s salary (which is just under £200,000). In addition we will require the FSA to publish its assessment of all regulated firms remuneration policy.
Holding directors to account – We will extend the powers of the FSA to ensure that the directors of banks are personally fined if their institution breaks the current code of practice for remuneration
Liberal Democrat Leader Nick Clegg said:
I want to see fundamental reform to Britain’s banks. Only by transforming the banking industry from top to toe can we start to build a new economy. I make no apologies for the fact this will mean big changes in the City of London. I want to see a change as fundamental as the Big Bang of the 1980s, for the better, not the worse.
“I want to focus, today, on one particular issue: bankers’ bonuses. They have become symbolic of the culture of greed and excess that dominated the City in the build-up to this crisis. We have a five point plan to finally bring the bonus culture in banking under control.
“Liberal Democrats will ensure the bonus system can never again encourage banks to behave recklessly. Ultimately our plans to break up the banks and make the banking industry more competitive will bring an end to the excess profits of the investment banking system and the massive bonus payouts that come with it.
“But we should not wait. Bankers must understand that after the billions pumped into the banking sector there can be no financial or moral justifications for the obscene bonuses which are still being paid out.”
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6 Comments
I love elections too but one of the downsides is that you have to bite your tongue from time to time. That’s what I’m doing in this case, but suffice it to say that I think this is a long way from being the best press release our party has produced!
:carefully inserts gag into mouth to prevent further comment:
Interesting – good is so far as it goes, but doesn’t go far enough for my own liking – disclaimer: what follows is personal opinion…!
we should really be talking about high pay culture as a whole, and looking a bankers bonuses as a part of that. So in addition to extending FSA powers, we ought to be ensuring that remuneration boards have representatives of Average Jow workers on them and not just other executives, and ensure that shareholders and employees have greater power to reject exorbitant pay deals.
Oh, and of course there should be a high Pay Commission, which unlike Cameron’s snide attempt at public sector salary caps, would consider private sector high pay too – especially as public sector pay is nothing more than a symptom of the extravagance in the private sector.
Um, are you sure about that title? “Clegg launches 5-point plan to five point plan to [] bring bankers’ bonus culture under control”.
A few words need deleting…
I’m with Dominic on this one (and working for a financial services company, I suppose I should declare an interest!)
A limit of £2500 will inevitably affect those who have no influence on the strategy of the banks – they’re the people who answer the phones, man the counters in branches, do the admin and processing behind the scenes. And yes, some of these do earn £25,000 p.a., and if they’ve done their job well and hit the targets set for them, why shouldn’t they get their bonus?
Remember, individual targets might be something like the number of customers spoken to on the phone, the number of cases processed, and the like – not all people who work in financial services are directly linked to the sale of a product, or to the dodgy credit notes which caused this problem.
The FSA regulations actually have direct provision for systems & controls. Indeed, in the most recent Finance Act the FSA was given specific powers to review remuneration agreements for approved persons (those people with significant management influence, or who require FSA authorisation to carry out their jobs such as dealers or advisers) and can now veto any deal which they believe doesn’t meet these requirements. In addition, the FSA has today fined and banned two ex-Northern Rock directors who hid details of mortgages in arrears because it would make the company results look bad. Beefing up further FSA’s involvement in this – for example, by having the FSA approve all bonus structures – would probably prove a more effective deterrent than simply hacking off bank staff who are already being made scapegoats by their bosses.
Finally, on shares. Many current share bonus schemes require the member of staff to remain with the company for a number of years before they become available. Given the normal mobility in the market, is it realistic to expect an employee to stay with a company for more than five years (I never have)? The policy appears to be vague on this point but I do think it’s something which needs to be pinned down.
KL – could this not be a good idea-
Has the culture of individual bonuses not led to some of the miss-selling scandals of the last few years?
simonsez – in part it has, but the main driver for that (and I’m talking about pensions and endowment mortgages) was commission based products which paid more than the more appropriate alternatives. In any case, the majority of financial services employees aren’t in the sales side of the business, yet still receive bonuses pegged to their own individual contribution.
I can see the idea working in part – particularly the point about the top brass not getting any cash bonuses – but further down the food chain I think it could for some individuals be inappropriate. I know that if this happened in my company, my colleagues and I would be looking for an increase in salary from our employer to make up the difference, and would probably get the reception that drinking a cup of cold sick would. It’s also liable to hurt us in places where there is a large number of these members of staff – areas around Glasgow, Edinburgh and Newcastle, for example.