AS SURELY as night follows day, in the world of remuneration bankers will usually gain on the swings what they lose on the roundabouts.
So HSBC chairman Douglas Flint’s unsubtle signalling that the bank will try to get round – or, finesse, to be polite – new rules capping bonuses should hardly provoke an incredulous outburst of “No, tell me it ain’t so, Douglas”.
From the start of 2014, the European Union Capital Requirements Directive (CRD) 1V will limit bonuses for all bankers employed by EU-domiciled institutions to 100 per cent of their base salary (how will the poor dears get by on that)?
In a pathetically inadequate sop to the industry, the EU will allow bonuses of 200 per cent of base salary if shareholders approve. Flint has stuck his head above the parapet on the issue, hinting very publicly what many have speculated would be the industry response: hike basic salaries by game-changing amounts to offset the crackdown on bonuses.
I don’t think he will be the last in the banking industry to do so, however. There has to be an outrider to get the idea blooded in the public consciousness. Then other banks can fall in behind in various public forums to give the idea some momentum.
It was, therefore, always virtually a given that increases in basic salaries would be the get-out-of-jail-free card for banks faced with challenge.
Bank boards have limited options in the face of the EU aggression. They can take it on the chin; recalibrate the rainmakers’ remuneration towards salary and away from bonuses; or they can go nuclear and switch domicile out of the EU.
Even with the economic pivot of the world towards Asia, switching HQs elsewhere would still be a risky strategy. As Flint says, where a company decides to base its HQ involves far more factors than just pay.
And, in fairness, an EU bonus crackdown is a gift to Wall Street, Singapore and Switzerland in terms of attracting talent and a heavy blow to the City of London, a major contributor to the UK economy.
Having said this, I believe institutional investors in HSBC and its banking rivals, if they also go the route Flint has foreshadowed, will be unstirred.
Major shareholders care little about company largesse, even in straitened financial times, as long as the business’s profits are good and their own returns healthy.
HSBC, for example, including its latest results and divi, is a long-term model pupil in this respect.
It is only the ordinary layman under the economic cosh who tends to shake a weary head at the way the other half live, and the politicians and press who dutifully feed the disillusion.
Let economists rejoice as recovery continues
The new buzzword, if that is not an oxymoron linked to the dismal science, is “escape velocity”. But few will begrudge economists their new-found optimism if the economy continues to escape an oppressive atmosphere that could be described as five long years of austerity Groundhog Day.
The much more positive picture from the dominant services sector is the latest of a veritable flurry of more hopeful UK economic data. Minor booster rockets also seem to be have been fitted to manufacturing, retail, housebuilding, even that serial laggard, construction.
The UK recovery seems to be not only strengthening, but widening.