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New transparency on bonuses? Not really

Ben Chu

osborne1 150x150 New transparency on bonuses? Not reallyIn the Commons chamber George Osborne has outlined the fruits of Project Merlin and boasted that Britain will henceforth have the most transparent regime in the world on bankers’ pay.

Here’s how the BBC summarises the new system:

“RBS, HSBC, Lloyds and Barclays have agreed to publish the pay of their five highest paid executives, who are below board level – though this will not include top-earning traders who do not have managerial responsibility…The government will legislate that from 2012 all big UK banks must publish the pay of their board members plus the eight highest paid executives below board level. This disclosure requirement will apply to the UK operations of overseas banks such as Goldman Sachs and UBS.”

Tough? Perhaps if you’re the sort of person who finds Niles Crane intimidating. Moreover, it’s certainly not as tough as the regime recommended by the 2009 Walker report on banking governance.

Here’s what Walker urged on pay transparency (p21):

“For FTSE 100-listed banks and comparable unlisted entities such as the largest building societies, the remuneration committee report for the 2010 year of account and thereafter should disclose in bands the number of ‘high end’ employees, including executive board members, whose total expected remuneration in respect of the reported year is in a range of £1 million to £2.5 million, in a range of £2.5 million to £5 million and in £5 million bands thereafter and, within each band, the main elements of salary, cash bonus, deferred shares, performance-related long-term awards and pension contribution.”

Notice that Walker does not recommend an arbitrary cap on the number of executives whose pay (in certain bands) should be disclosed.  The Coalition limits the number of bankers whose pay will be made public to five (excluding board members, whose pay is public anyway). And this will rise to 8 from 2012. Nor does Walker say that traders should be exempt.

Walker was proposing that we – the general public and shareholders – should know exactly how many employees of our state-underwritten banks are receiving bonuses of more than £1m. He was proposing that we should be able to see the distribution of rewards too. The latter is crucial information. The banks like to give the impression that the bonus pool is evenly split among all their tens of thousands of employees. The reality, as Andrew Cuomo’s 2009 report on US banks’ bonuses makes clear, is jaw-droppingly vast rewards to a privileged few.

The Chancellor’s compromise will let us know more detail about some top pay packages than Walker would have. But in terms of useful information on banks’ overall remuneration practices it doesn’t come close.

Walker promised us the whole cake. Osborne has delivered crumbs.

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  • http://twitter.com/CityPam iPam Ryan

    Perhaps someone can tell us just what these reduce bonus monies are a bonus for. I am intrigued. Someone must know.

  • http://twitter.com/CityPam iPam Ryan

    Just watching Channel 4 News re the latest coalition idiocies. The banks won’t be lending more money to small businesses because according to the banks themselves, no bugger actually wants to borrow it. They are also saying the bonuses are largely untouched by the deal and any reductions are the result of smaller profits at the conclusion to this financial year compared to last. And the much vaunted transparency is just another mirage and was described by Vince Cable (when in opposition) as one that represents “letting the banks off”. There’s also some jiggery pokery with net and gross lending targets. The smelly Tories and their apologists just get smellier.

  • Stanna

    The govenment always miss the tricks. Banks will always run rings around political lightweights who couldn’t punch their way out of a wet paper money bag.

    Public money handed to these banks in the first place should have only been given under the same rules that these same banks apply to businesses who lend money from them.

    The govenment should have shown it’s teeth by insisting banks have proper sound business plans. They should not have lent money to a bank unless it agreed to operate within sensible guidelines ristricting the size of future bonus payments. The banks should have been (and still should be) held acountable over any dodgy dealings that have led to this financial meltdown with fines and jail sentences for those responsible for any illegal malpractices.

    Now that the banks have had taxpayers money thrown at them it was the right idea to give them a surprise increase in the amount of tax owed. What the govenment should have done however, was to link their tax rate to the size of bonuses and just to cover a loophole to link it to include any future pay rises above the normal rate of inflation too.


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