PM to banks: give back your bonuses

The Prime Minister was left exposed when the Financial Services Authority (FSA) said the recession may be "deeper and more prolonged" than expected as a result of bankers taking excessive risks in pursuit of bumper rewards.

Mr Brown was also ridiculed for a "totally inadequate" response to news that Royal Bank of Scotland, which was kept afloat with 20 billion of public cash, was preparing to pay staff about 1 billion in bonuses.

When the 37 billion bail-out of RBS, Halifax Bank of Scotland and Lloyds TSB was announced last October, Mr Brown was pressed by David Cameron, the Conservative leader, to protect the taxpayers' investment and ensure there would be "no more indefensible bonus packages".

But yesterday ministers were left pleading for bankers to show "moral responsibility" and turn down their bonuses, amid confusion about what, if anything, could be done to break the contractual obligations of some banks to pay their staff the windfalls.

The calls came as John Prescott, the former deputy prime minister, launched an online petition calling for RBS bankers and traders not to receive bonuses. He hopes to build an "online army" opposed to the payments, which the petition says are "morally and economically outrageous". More than 1,000 people had signed by lunchtime yesterday.

Mr Cameron said: "It does appear that the government has been completely asleep on the job."

The government yesterday announced a review into pay incentives and the effectiveness of bank boards at controlling their traders, as Mr Brown claimed he was "leading the world" in sweeping away the short-term bonus culture.

But it emerged that the review, by the financial expert Sir David Walker, would only "inform" this year's Budget and would not be published for a year.

George Osborne, the Tory shadow chancellor, accused the government of acting too late, saying: "The problem of bonuses in the government-owned banks has been looming for months, but now they have set up another review that will be far too late to do anything about this year's bonuses."

Vince Cable, the Liberal Democrat Treasury spokesman, called it "a classic British establishment cover-up". Contrasting the review with President Barack Obama's $500,000 limit on executive pay at US banks that get taxpayer help, Mr Cable said: "The government is clearly playing for time in order to avoid doing anything to upset the bankers."

He called for a freeze on all bonus payments for employees of semi– nationalised banks such as RBS, in which the government holds a 68 per cent stake. Both the Lib Dems and the Tories said that cash top-ups should be avoided, with any bonuses that had to be paid being made in shares that could be redeemed only after any taxpayer loans had been repaid.

However, Mr Cameron said he wanted to target bank executives rather than "the woman who runs the branch at Auchtermuchty" or other employees on more modest wages.

Research by The Scotsman has found that Sir Fred Goodwin, the former RBS chief executive, earned 22,502,000 in a decade at the helm of the bank, of which 13,295,000 were bonus payments. This excludes his remuneration for 2008, which will be revealed in a few weeks when RBS publishes its annual results.

Similarly, Andy Hornby, the former chief executive of HBOS, who joined the group in 1999 and was appointed to the top job in 2006, earned 8,584,000 between 2000 and 2007, of which 3,454,000 were bonus payments.

The two former bank chairmen, Sir Tom McKillop of RBS and Lord Stevenson of HBOS, also shared in the financial largesse. Though neither received bonuses, Sir Tom earned 1.2 million from chairing the RBS board between 2006 and 2008, while Lord Stevenson pocketed almost 4 million in a near decade in his job.

Yesterday, the Prime Minister said a policy of "no rewards for failure" would be pursued aggressively as he announced that banks in which the state holds a majority share – Northern Rock and Bradford & Bingley are fully nationalised – would pay no bonuses to board members and no dividends to shareholders this year.

He said: "We should not in any way condone, but should punish, irresponsible and excessive risk-taking."

Mr Brown added: "We are leading the world in sweeping away the old short-term bonus culture of the past and replacing it with a determination that there are no rewards for failure and rewards only for long-term success."

The Prime Minister's spokesman described Mr Brown's mood as "angry – he's very angry". He went on: "But he's also focused on ensuring that we can find the solutions which benefit the economy and the country as a whole."

He added that any legal commitments to award bonuses would be examined "very carefully" by UK Financial Investments, the company set up by the government to manage its shareholdings in the banks.

But the spokesman insisted the government had been taking action on bank bonuses since last October, and that that continued both in discussions with individual banks and in the terms of agreements under the asset protection scheme.

He added: "The review announced by the Chancellor this morning is about how we move forward and change the culture within the banks. This is not just about bonuses."

News of the review came as the FSA outlined the long-term damage of bonuses in its latest financial outlook report. "Although it is hard to prove a direct causal link, there is widespread concern that remuneration policies may have been a contributory factor to the market crisis," it said. "The policies used during the period leading up to the crisis, mainly but not exclusively in investment banking, tended to reward short-term revenue and profit targets."

Earlier, Treasury minister Yvette Cooper said executives at banks dependent on taxpayer support had a "moral responsibility" to consider forgoing any bonuses this year.

Ministers hope the message will extend to banks that have not sought taxpayer investment.

A total of 288 Foreign Office staff shared bonuses totalling 2,435,100 – an average of 8,455.21 – last year, it emerged last night. That was an increase on the 2,201,790 shared by 348 staff in 2007, and comes amid a government drive to slash 35 billion from Whitehall budgets.

Barclays scraps bumper pay-outs for top directors, despite making 6.1bn profit

BARCLAYS scrapped bonuses for its top directors yesterday and launched a group-wide pay review as it announced a 14 per cent fall in annual profits.

John Varley, the chief executive, said the bank's executive directors would receive no bonuses this year, while pay-outs across the bank would be "significantly lower" than 2007.

Barclays posted better than expected profits of 6.1 billion for 2008, as the row over pay-outs by banks propped up by the taxpayer continued to rage. Although Barclays has not used the government's recapitalisation scheme it is likely to take part in other forms of public support to the struggling sector.

Barclays said it was reviewing its compensation arrangements to ensure they "evolve appropriately".

"Our endeavour is to maximise the alignment between these and the interests of our owners, as well as to ensure that our compensation policies and practices are appropriately benchmarked to changing best practice in the industry," Mr Varley said.

Mr Varley said Barclays' overall payouts on salaries and bonuses had fallen 10 per cent to 6.27 billion last year.

Q&A: Not so easy to ban bonuses to bank bosses and their staff

Why are bonuses being paid by banks that are virtually nationalised?

The main reason is to do with timing. These bonuses relate to the 2008 financial year – effectively back pay – while the government only purchased stakes in Royal Bank of Scotland and the newly-formed Lloyds Banking Group last month.

The government may have a better chance of preventing bonuses for activities from now on, as it has indirectly appointed people to the part-nationalised banks' boards and can tie them to conditions both as a major shareholder and when it provides loan guarantees.

Is it possible to block bonuses that employees are entitled to under their contracts?

John Lee, head of employment law at the Edinburgh firm MBM Commercial, said: "I think the government will have a very thorny task if they try to prevent bankers receiving bonuses. They are no different from any other employees. Their contractual rights are exactly that and there's not a lot that the government will be able to do about it. The government can certainly apply pressure on the banks to change their system of awarding bonuses, but they can't force individual employees to accept changes in their contract.

"A lot will depend on what is written into people's contracts, and it won't be the case that all bankers will have bonus arrangements down in black and white."

Is David Cameron right to say that Gordon Brown has been asleep on the job?

Mr Cameron claimed yesterday that he warned of the dangers of bonuses as far back as last October, and Hansard – the official record of Parliament – proves that to be the case. At Prime Minister's Questions on 8 October, Mr Cameron states that because of the scale of the publicly-funded bail-out of some banks, there should be "no more inappropriate dividend policies and no more indefensible bonus packages".

In reply, Mr Brown said: "We are in discussion, on a case-by-case basis, with the banks that want to take up the scheme about the level of executive remuneration, especially the bonus system that has caused so much difficulty."

'Angry' workers set to take legal action to safeguard their pay-outs

BANKS could face legal action by disgruntled workers if they are denied bonuses, a City lawyer claimed last night.

Ronnie Fox revealed he is representing clients at three different banks who maintain they are entitled to pay-outs despite recent events.

The specialist in employment law said: "In each case they have said to me that there are several other people in the same position. I'm acting for a small number, but depending on what happens I could be acting for a much larger number.

"At the moment the government's telling the banks to look very carefully at the bonuses paid to people where the banks have received state aid. Where they have done well or their business unit has done well it's wrong that they should suffer."

Mr Fox said there was a shortage of jobs in the financial sector and that some bankers are "quite angry" at the prospect of having to give up the bonuses they expected.

He added: "The government over-simplifies things and says 'all bankers are bad, none of them are entitled to bonuses, they got us into this mess'. They're doing it to focus attention away from the government's role."