The never-ending bonus story

HOW remarkable that the Bank of England now proposes that bankers may have to return their bonuses in the event of “misbehaviour”, big losses at their bank, or bad risk management.

News of bankers getting lucrative bonus' never seems to end. Picture: Getty Images

It is remarkable only for this reason: how has it taken it six years to get here?

Public fury over bank bonuses has boiled since the 2008 financial crisis brought colossal losses and required huge taxpayer support. Six years on, RBS is still reporting massive losses – £8.3 billion in the latest accounts. But it is still paying bonuses – £576 million in 2013, some £237m of this to investment bankers. It also recently awarded 11 of its directors a share package worth up to £18.25m.

Now the Bank proposes that bonuses may be returned up to six years after receiving them. Previously, it had suggested only that promised bonuses could be repaid. It says the new reforms are “much more stringent”.

It has long been known that the full effects of investment banking behaviour – good and ill – may not be fully felt for several years. It becomes very difficult for a bank to justify such bonus payments when, years later, they find themselves reporting large losses. It is sensible that the bonus awards system should reflect delayed effects.

One immediate problem is that bonuses may be quickly spent and hard to recoup from bankers whose family circumstances may have changed or who have moved on. The deeper flaw is the large area of dispute that would arise over subsequent events impacting on bank performance. And tough-sounding clawback does not address the underlying questions surrounding the culture and practice of bonus excess in the first place.