Should the Treasury approve big banker bonuses?

 
RBS logo on store

If it's January, it's time for the traditional disclosure that hundreds of bankers in London are earning considerably more than £1m each, prompting outrage from Labour and embarrassment on the part of the government.

The dance has been more-or-less the same every year since the Crash of 2008.

And although pay levels for bankers have fallen a bit since then, and more remuneration is deferred and capable of being cancelled if deals go bad, the sums shelled out still look enormous at a time when earnings for the vast majority of households continue to be squeezed.

There is however an awkward twist for the government this year. Which is that new European Union rules mean that if banks want to pay bonuses greater than 100% of salary, they have to get the approval of shareholders - and in the case of semi-nationalised Lloyds and RBS (in particular) that would require a "yes" from the Treasury.

To labour the point, the government, as 80% shareholder in RBS, would have to formally approve any desire by RBS to pay 200% bonuses to its top people.

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Labour, of course, sees what looks like a wide open, undefended goal”

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'Consulting'

So, does RBS want to do this?

Well, the huge bank is "consulting its shareholders about this" but insists that it has made no formal request.

As for the Treasury, it too says that RBS "has not made a request".

And the Treasury also points out that it is challenging the EU cap on bonuses in court, because it agrees with the head of the Prudential Regulation Authority, Andrew Bailey, that any limit on bonuses will "just increase base pay, reduce claw back [the ability to get money back for poor performance] and undermine financial stability".

Or to remind you what you already know, for bankers big pay is as natural as cold weather in January. And if they don't get it in the form of enormous bonuses, they'll take it in higher salaries - or move to Switzerland, New York or Singapore.

Exodus

Some might say good riddance. But owners of banks that cannot move their branches to Switzerland, New York or Singapore might fear that the value of what's left would be depleted.

Labour, of course, sees what looks like a wide open, undefended goal, and is calling on the government not to sanction big bonuses at RBS.

Whether Labour would take precisely the same view if it were in government and was the RBS shareholder, and if it was advised that not to pay the market rate would lead to the exodus of whatever talent is still at this political football of a bank, well that is the kind of hypothetical question that could make us all go blind, if we thought about it too much.

 
Robert Peston, economics editor Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    +4

    Comment number 44.

    Put those responsible for the crash in prison first.

  • rate this
    +2

    Comment number 43.

    @19.
    Gabriel Oaks


    Regaining public confidence in the banking system must be more important than any bonus.

    Unfortunately in this rotten banana republic, greed, avarice, cronyism, nepotism, am all right jack is the order of the day and god forbid anybody who gets in their way. It stinks and only will the smell start to recede when banksters are doing time. !!!

  • rate this
    0

    Comment number 42.

    Bash the Bankers time again; jolly good!
    What we are seeing is the disenfranchisement of the shareholders. The institutions, which hold the majority of shares, have a vested interest in agreeing to whatever the bank/company suggest as they do not want to hit the share price. (Their own bonuses depend on good results.)
    UK would be a LOT poorer without the banks. Effective regulation is the answer

  • rate this
    +1

    Comment number 41.

    Simple question - Did RBS make a profit?

    There is your answer.

  • rate this
    +52

    Comment number 40.

    I don't give a toss what bankers are paid in wages or bonuses, just like with any other business. What I do object to is my dosh being used to bail them out when they should be left to go to the wall, just like with any other business.

  • rate this
    +32

    Comment number 39.

    This is a defining moment for the government.

    They have protested that they are unable to close down tax avoidance schemes.

    They insist that in hard times we all must share the pain.
    They maintain that we are all in it together.

    So prove it and refuse to sanction these bonuses, or at least ask us, the public, the real shareholders, what we think because you only wield our proxy vote.

  • rate this
    +5

    Comment number 38.

    If more effort is made to develop young talent, it might be discovered that there are plenty of potential candidates to fill vacated banking jobs, in the event that there is a surprising mass-migration?

  • rate this
    +43

    Comment number 37.

    all bonuses should be paid direct to the treasury until they've paid off the bail outs.

  • rate this
    +5

    Comment number 36.

    Please Sir, may I have some more?

    MORE?

    Yes Sir, I'm a banker.

  • rate this
    +3

    Comment number 35.

    "21. CampFreddie
    Why not set up a State owned bank. "

    We've already got one Freddie - it's called RBS!

  • rate this
    +1

    Comment number 34.

    Politics of envy, just like the 50% tax rate which didn't make the Treasury any more money & made us less competitive. Let's just accept that life isn't fair, some folk win the lottery, some are exceptional sportsmen/musicians, some get cancer others get injured in accidents. However there's nothing stopping any of us applying to be a banker? I like the fact their taxes & bonuses are spent in UK

  • rate this
    0

    Comment number 33.

    No, No, No, Let the so called talent leave if there so good they'll up sticks and go elsewhere, but of course they won't as they would have to compete with the super rich in places like the US, Switzerland, Hong Kong, Singapore etc for school places housing and of course the biggest hurdle adjusting to different cultures !!!

  • rate this
    -3

    Comment number 32.

    John_from_Hendon @12,13
    "Origami"
    Came 'the voice of one crying in the wilderness': and all were baptised agreeing amongst themselves none to receive less than a twentieth of a supper, wanting only agreement on who should be 'The One' to have that twentieth of a supper, all being sure if not of their own 'worth' at least of the 'worth' of their children & the 'support' of their own political views

  • rate this
    +2

    Comment number 31.

    Virtually everyone who sells new cars in the UK gets a bonus above 100% of base salary. Nobody considers this odd. Then again, pay is generally not colossal in total and payment is directly linked to real-world measurable performance and not to the estimated value of some mythical financial instrument.

  • rate this
    +2

    Comment number 30.

    @19 so if you're a middle manager in RBS, and someone says to you "you can either have a bonus of 300% of your salary, or we can not give you a bonus at all but we might be able to restore the credibility of the industry" you'd take the latter? I doubt it.

    @23 which banks operate without bonuses?

  • rate this
    +3

    Comment number 29.

    We are all in this together.*


    *exclusions apply for politicians & bankers

  • rate this
    +4

    Comment number 28.

    There is a view that we can somehow "make up the rules". In a globalised world the consequences will be severe. We do need to get used to the reality that capital and labour are mobile.

  • rate this
    +82

    Comment number 27.

    If these nasty little rogues got jailed for very long terms if (when) they were caught defrauding the public, laundering money, breaking sanctions, rigging interest rates etc then I wouldn't have such a problem with their ridiculously high salaries and fat bonuses. It's the "all reward, no penalty" ethos that really sickens me.

  • rate this
    0

    Comment number 26.

    NO!

  • rate this
    +1

    Comment number 25.

    Bonuses are fine provided that there is also an influential link to customer satisfaction, as genuinely measured by customers.

    Influential - it should constitute 30% or more of the bonus and, detract from the rest of the bonus if satisfaction levels fall below a pre determined level.

    'Bankers' bonuses have only been linked to profits no matter what the human cost and as such are immoral.

 

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