THE City has closed ranks against moves to cap bonuses at Royal Bank of Scotland to 100 per cent of basic salary, claiming it could spark an exodus of top talent.
Fund managers and City headhunters say the calls by the Labour Party for the government to use its majority stake in the bank to block bonuses worth up to 200 per cent of salary are half-baked. They say it could lead to poaching of RBS staff, by American banks in particular.
Paul Mumford, a fund manager with Cavendish Asset Management, which has 3.3 million shares in RBS, said: “I would much prefer bonuses to be left to the individual institutions rather than politicians.
“The danger is if you get an imposed [lower] cap, people will leave RBS to join foreign banks. And, unfortunately, the people that do tend to leave in this situation tend to be the best ones who are most employable elsewhere.
“We don’t want to ruin the RBS gradual recovery by it losing their best people.”
The controversy has been triggered by European Union legislation limiting bonuses to 100 per cent of base salary, but with the option to make it 200 per cent with shareholder approval. The government has an 81 per cent stake in RBS.
Jonathan Evans, chairman of Sammons Associates, one of the City’s recruitment specialists, said: “There will be a significant exodus from RBS if their bonuses are capped at 100 per cent of salary.
“Such a move could result in RBS losing up to 10 per cent of their best-performing employees. Star employees simply won’t hang around if they can get a significantly better bid elsewhere. For instance, US banks can pay more than the European ones currently.”
The controversy comes as Labour leader Ed Miliband has called for a cap on the market shares of Britain’s established big banks by forcing them to get rid of branches if necessary in order to help new “challenger” banks.
The proposals have been attacked by the CBI business lobby group.