THE call by the Bank of England governor for consideration to be given to curbs on bankers’ fixed pay, as well as bonuses, for wrongdoing will resonate with many. You can’t have a procession of financial scandals – rigging of the Libor lending rate and in foreign exchange markets being the most recent – without people thinking parts of the banking industry are out of control.
In a memorable phrase, Mark Carney said it is untenable now to argue that we are talking of “a few bad apples. The issue is with the barrels in which they are stored.”
As banking has gradually recovered from the excesses that hastened the financial crash, regulators have insisted a greater proportion of bonuses is paid in shares and that they be deferred for longer and subject to clawback in the event of misconduct or irresponsible risk-taking.
Many banks have responded by raising the basic salaries their high-flyers receive. It sometimes resembles a game of cat-and-mouse between regulators and regulated, each responding to the other’s moves with stratagems of their own.
This is typified by the European Union limiting banking bonuses to 100 per cent of salary unless there is shareholder approval for a higher payout. Banks sought to circumvent that by paying a bigger part of the overall remuneration package in higher basic salaries and “allowances”.
It therefore was bound to move the game on from bonuses to scrutiny of basic pay again both at the Bank of England and its US counterpart, the Federal Reserve.
Carney realises that the public will not be mollified by the bonus crackdown if people realise that, in practice, arrogant bankers are gaining on the basic salary swing what they lose on the bonus roundabout.
But it is not just about the money. Senior managers in a bank may be more likely to set the standards for good and ethical behaviour among staff if they know a certain amount of fixed salary they have been paid may also be demanded as part of any clawback as well as cash bonuses and long-term incentive plans.
There may be some squeals from parts of the banking industry. They should be faced down.
PM’s warning on the economy is justified
DAVID Cameron may have next May’s general election in mind, and as part of that the Conservatives’ lead over Labour on economic competence in the opinion polls, but his warning about a gathering confluence of faltering economies and political tensions is sound.
The eurozone is flirting with recession again, and emerging markets are still volatile, while from the Middle East to Ukraine and the South China Sea there are ominous geo-political shadows that could derail the global recovery.
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