Sharon Bowles MEP writes about bankers’ bonuses in the Independent. She tackles the arguments against EU proposals to limit bonuses to a years’s salary. Will banks relocate overseas? Sharon says not:
Firstly, the threat of bankers relocating to avoid the cap has been grossly exaggerated. The cap will only apply to a small number of so-called high-risk traders, around 5000 out of the estimated 750,000 people employed in London’s financial sector. Moreover, the bonus cap will also cover all key staff who work for European banks across the world, no matter whether they operate in London or Singapore. And with Switzerland having just voted for even broader limits on executive pay for all companies, European bankers are hardly likely to relocate to Zurich.
There are also many good reasons for banks to remain in London, including the city’s historical clout and financial expertise, access to the EU and capital markets, a strong legal framework, implicit taxpayer guarantees and the GMT time zone. We should also not discount the excellent lifestyle and cultural attractions offered by what remains a world class city. In any case, if the effect of bonus regulation is to force the introduction of new blood and new talent, instead of the cosy clique that fostered the Libor-rigging merry-go-round, then perhaps that is no bad thing.
She talks about other aspects of the banking reforms, including greater transparency for the banking sector.
Another key part of the reforms, largely overshadowed by the issue of bankers’ bonuses, are the strict new transparency requirements for the financial sector. These will force banks to disclose their profits and tax arrangements in each country in which they operate, both in Europe and throughout the world. This is something I have long campaigned for, and is a major first step in ensuring that all multinational companies pay their fair share of tax and do not stash away their profits in off-shore savings accounts.
You can read the whole article here.
* Caron Lindsay is Editor of Liberal Democrat Voice and blogs at Caron's Musings
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19 Comments
How much a private company pays its employees has nothing to do with any government. This measure will increase the bank’s fixed costs and therefore reduce their willingness to lend. Politicians should not be telling people how to run banks.
This is a classic case of politicians playing to the gallery rather than acting in the national interest. Sharon Bowles should defect to the Labour Party.
The key to preventing another economic crisis is to save when the times are good, not choke of economic growth.
Has an assessment been done of how much income tax and NI will be lost from this ?
yes, as the above commenters say, this is a really stupid and illiberal idea. Sure, we can dictate to state-owned banks how much they pay their staff. And we can raise top rates of tax for people earning huge amounts, if we think that makes sense. But what business has the state got in telling a private company how much it can pay its staff? Sharon Bowles is usually quite sensible but this time she seems to have taken leave of her senses.
Best thing I have ever heard/read from Sharon Bowles -and indeed from the EU, which was opposed by Tony Benn as a’ capitalist club’!
I really dislike many of the things that came with banking bonus culture, but I am not sure that gives me, or the government the right to start dictating what private companies pay their staff.
The are better ways of avoiding another baking crisis, making sure that shareholders get wiped out would be top of my list.
Who and what are we doing about persuading people to join, either as supporters, volunteers, and members of our movement?
There’s always lots of focus group and related meetings to discuss and regurgitate same old plans but action not words is wht is now essential.
So lets hear who is doing what, successfully, we’ll at the moment?
Why is the Scottish spring conference not up on the Flock Together diary of events?
Tut tut!
Paul, you say this is a great idea but it will not reduce sales targets in banks, it just changes the way employees are paid for exceeding those targets. So I do not think it will do anything to prevent miss-selling. Or are the European Union going to start setting sales targets too? Rhetorical question.
Rather than dictate company pay policies, the government should introduce a tax, a fixed percentage of the aggregate gross pay of those employees earning over, say, £500K to be paid by companies.
This would introduce a constructive tax threshold and some resistance to ever higher top salaries that the ‘market’ has failed to provide
Implementation could be straightforward because it is really an extension of an existing ‘tax’ – employers’ national insurance contributions. This is a cheap and easy tax to collect and a difficult one to avoid.
This proposed tax would raise funds for the treasury, or allow cuts to employers NI tax for the low paid for a fiscally neutral (and even company tax neutral) solution.
I just don’t see how the bonus-cap will have any effect whatsoever on the culture in banks that directly lead to the financial crisis nor on the way bonus’es are allocated.
If you get good trading results (perhaps through risky trading) and a big bonus, then the following year everything goes wrong they don’t pay you a bonus (known in the City as a doughnut, based on the shape of the number zero). If we had the system Ms Bowles seems to be proposing, you would get a pay rise for good results. If things went wrong the following year then you would still have your high salary locked in – so risky trading is rewarded even more under her system.
Actually if Ms Bowles is really interested in improving the system rather than trying to get votes from haters, the best reform would be to actually replace salaries for traders altogether with bonuses, paid in such a way that they can drop to almost zero if the fund loses, say 20 percent and are proportional to the value of the fund above that level at the end of the period – that way they would have to wear the trading losses instead of the one-way bets traders have when bonuses are only paid for performance above a certain industry-average benchmark.
Just change income tax.
“How much a private company pays its employees has nothing to do with any government. ”
You are kidding I take it?
Those private companies end up being bailed out by the tax-payers when their efforts to gamble for bigger bonuses blow up in their faces. They have had repeated opportunities to exercise restraint and/or self-reform. They did not do so. Their behaviour is not “consequence free” – it does effect everyone else in society so it is not just a private employer-employee matter.
Therefore it is absolutely correct that efforts are made to restrain such behaviour. This is a step towards altering the risk:reward ratio for the people concerned.
The “average tax-payer” can think of more pressing issues to spend their tax monies on than using it to clear up after bankers’ “let’s gamble for the big bonus” folly.
Paul, I agree something should be done with the banking sector (encouraging more competition for one), but I don’t think capping bonuses will help the sector or the economy. It will be business as usual for the banks. The economic crisis wasn’t caused by a banker buying a Ferrari.
Some information for you as well: when Labour introduced the bank bonus tax I seen director level basic salaries in the City go from around £250,000 to £500,000 almost over night. It was astonishing to see, perhaps they will now be edging towards £1,000,000. The gamble for the big bonus folly will just be replaced by the “gamble for the big salary folly”.
The problem is the profit incentive not the bonus incentive. The profit incentive always has pros and cons but the way to avoid the worst of it is by ensuring markets are competitive and too much power is not hoarded by too few so when one when bank goes bust (such as Lehman’s) it does not cause a systematic crash in the whole economy. It will also lead to lower financial charges and generally a greater distribution of wealth.
We can introduce more competition to the market by having a more progressive tax system and perhaps also reducing barriers to entry to getting a deposit taking (banking) licence. I’m not one for tradition but this is a case of traditional capitalist problems with traditional Liberal solutions.
A bonus cap seems like an idea driven more by political considerations than by a clear view on the causes of the crisis. While it is an eye-catching headline it needs to be backed up by much more meaningful (technical) measures in order to ensure that we don’t have a repeat of the insanity of a few years ago. What’s the chance of that? Minimal I think, in fact all of the products that triggered the crash are now available again.
In the absence of a proper separation of retail and investment banking this feels like window dressing. I have no problem with a bonus cap, but it needs to be backed up with meaningful legislation.
While I personally don’t object to a bonus cap it rather feels like
Apologies. I typed the previous comment on my mobile and the last (unfinished) line wasn’t supposed to be there.
In the article you link to, she points to the case of the Lloyds boss who is getting a bonus despite the company losing money. She may think that the boss of Lloyds is getting paid too much generally, but why does she mention the losses at Lloyds in support of restrict performance-related pay? After all, she is arguing for fixed pay regardless of company performance and against variable pay.