Banking Bonuses Must Be Capped

Yawn ... boring ... no they shouldnt be capped . If i come to you with an offer I will make you a trillion but i want 0.5% would you take it ?

I wish Joe Bloggs would go away from commenting on tings they dont understand or fathom .

In theory, I think a bankers bonus should be linked to their performance but deferred 3 to 4 years.

In practise, I don't think this can ever happen, unless Mr. G Brown pulls of his miracle (first he has to stay in power). I heard on the beeb's Wake Up To Monday that Mr Brown was trying to change how banking bonus systems work on a global basis. This would mean for example that globally, banking bonuses are deferred, capped etc, whatever the solution is they come up with.

If this isn't done globally at exactly the same time, then the big earners will simply go to another country and earn their massive bonus there rather than in the UK; that would do nothing less that leave the UK with a second rate banking system run by second rate top management which would leave the UK banking system in a worse state than what it's in today. Not all top management are terrible, HSBC have got through this crisis seemingly unscathed when compared to Northern Rock, RBS, Lloyds etc.

Generally speaking, I think the government should stay out of the private sector and let market forces do their thing.

Governments should concentrate on public transport, education and health care and not try to be cleverer than what they really are.

Andy

Yes, deferred for sure. Banking and ethical are two words that just don't fit together. Every penny made by someone, is a penny taken from someone else, although quantitative easing is a bit of an odd case. In any part of society you will always have bad eggs, who abuse their responsibility and spoil it for everyone else.
In today’s media focused world we see the few wreckers more often and this creates an immediate outcry by the public to change well established systems. The banking system is built on trust, and established processes which work in a perfect world, but you have also got to account for the people who will undermined the system; deferring bonuses is one way to achieve that objective.

@shanezuri: Would you still make the offer if you personally stood to lose 0.5% of a trillion?

Qando9999: I agree that IF bonuses were capped, it should be done worldwide (which would be very difficult), although your argument that without a worldwide agreement the UK would be left with a second rate banking system is laughable. What do we have now, a third rate system? If anything, we would save money.

I beleive in free-market capitalism and wouldn't have saved the banks at all (I'm not an economist and so don't know the potentially disasterous results of doing this, apart from some forced poverty), but surely this would slowly have the same effect as an effective regulation?
We are "supposed" to be able to trust banks and many are failing us.

Don't cap bonuses, but make the bankers really responsible for what they do, good or bad.

It really seems so simple, that I must be missing something really obvious here:
Absolutely defer the payment of bonuses for a reasonable period - to ensure they really have been earned. In addition, require that a substantial portion of bonuses are paid in shares, with approprite time restraints on cashing-in. (Capping bonuses is childish nonsense as we all know it will not work, on any number of levels.) All bonuses above a certain level need to be controlled through owner intervention ie the shareholders (remember them?) & this can only be done through the requirement to have a transparent bonus arrangement monitored & agreed at each AGM - along with remuneration for top execs. If they get it wrong then the shareholders pay in loss of profits etc.. why on earth should anyone else get involved?

Has anyone thought about where the money comes from to pay these bonuses?

Yup. It might be indirectly, but one way or another it ultimately it comes from your pocket and mine.

The banking sector in this country is like the oil in the the Middle East, it's all we really have left to trade, this puts us in a very difficult situation when it comes to making decisions like this, but not reins on your carriage, to control the horses that pull it is a little daft. The free market can veer of at any time and we have seen this with our own eyes, there must be legislation without this there is no control.

If high earners want to leave the country, that's FINE. There will be someone equally good to take their place who doesn't want to move overseas. Limiting salaries, does NOT mean there will be a brain drain. High pay does NOT equal productivity.

On bonuses, I think they should be paid in actual shares, valued at their past-five-year average price, only tradeable after five years. Watch the focus on stability if the future performance of the institution governs how much is actually received...

Separating retail and merchant banking again might be a start to get back to stability; those old-school (tie) merchant bankers (before it became rhyming slang...) were very risk aware when they faced unlimited liability for their losses

Bonuses are a needless distraction that governments should leave well alone. The only issue that needs to be resolved moving forward is ensuring that no company, bank or otherwise, is too big/critical that it can't be allowed to fail.

This main issue of banks being too big/critical to fail will require a great deal of time and effort to find solutions to this highly complex area. The more time wasted on this nonsense simply detracts from real issues.

Can someone - anyone - who favours a cap on banking bonuses please explain how it will work in practice, how it will be enforced, and what will be its basis in law?

If a law is enacted to limit bonuses, will it apply only to quoted banks or to privately owned banks as well - in which case, what business is it of the government how much a private company pays its employees?

And why exclude the life companies, guilty of pensions misselling and endowment mortgage misselling on a titanic scale, yet handing out huge bonuses on the one hand while on the other hand they have introduced sneaky tactics such as MVRs to snatch cash back from policyholders?

The fault in the current system is not bonuses per se. They are just a symptom. The fault lies back in the 1980s, when traditional retail banks became one with merchant banks, allowing the riskier side of the business to employ the capital of the previously safer high street banks.

It's too late to put this genie back in the bottle, but not too late to hobble it by decreeing that retail bankers must increase their capital reserves if they wish to increase, or continue, their merchant banking operations.

The exact increase can be moved up or down from time to time by the Treasury, Bank of England, FSA or whatever, in line with the economy, thus making it a flexible bit of kit in the overall economic toolbag, while safeguarding the funds of ordinary depositors.

As a shareholder I think a major issue with exec bonuses (and not just in banks) is when they're all 'carrot' and no 'stick'. I have no problem at all with large bonuses rewarding success but I have a serious problem with rewarding failure.

To call their risk taking behaviour 'gambling' is an insult to gamblers - when I play poker if I make bad decisions I will (and do) lose my own money; however if I knew I'd get to keep my winnings when I succeeded, but someonne would bail out my losses when I failed then of course I'd take much more risk.

The answer is simple, yes and no. Barclays Capital were transformed by Bob Diamond who deserves every penny of his bonus. He steered them clear of the Russian Bank collapse and picked the best people from Enron and more recently Leaman Brothers. Barclays didn't borrow Government money and the pulled out of the AMB Ambro take over. Good work Barclays. Compare this to RBS/Natwest the world's worst bank, their bonuses come from us the tax payer and before that they were acquired by landing 18 year old school girl/leaver in nearly £12,000 worth of debt, this based on her earnings from a Saturday job at Waitrose! They fiddled her earnings too, including an annual bonus as if it were quarterly. No one but no one at RBS/Natwest should have a bonus, a prison sentence would be more suitable.

an emotive topic as evidenced by number of responses......... similar to the argument of capping footballers wages..... best not to interfere in the market......in my experience the rich owners in the City and at football clubs simply do not give money away uneccessarily ........ if it is that easy to do then we would all be doing it..... most of us mere mortals would not stand a chance at either football or managing funds ..... if you disagree then let's challenge the TV programme makers to a reality TV show where someone normal tries to blag it as a premiership footballer and as a fund manager in the city...... I suspect you would be found out within minutes on the football field and slightly longer in the City but found out you will be.......... why on earth would the system reward people so highly if they did not possess talent even though we may not class it as valuable.... as for the protection of the banks again I do not agree........ scrap the government protection and let investors spread their risk around lots of banks......... if they fail they fail..... they are money shops nothing special

1 I don't need a massive bonus to do an honest days work for my employer.

2 If I had a massive "heads I win" "tails the company loses" bonus scheme, I would be incentivised to take risks. This seems like a bad idea.

3 The bank shares are held mainly by funds & institutions who vote on the bank management. However, the actual OWNERSHIP of these assets iw by the man in the street who has his pension fund or investments with these institutions. Therefore the actual OWNER of the bank shares doesn't vote on the leadership of the banks. This is a fundamental flaw.

Oh and I also believe that such institutions should be modified so that there is a limit to the proportion of shares that are traded to less than 50%, with the Government perhaps automatically having not so much a holding in the company but having a say in the operation of banks on behalf of the public and the option to veto certain actions, and other parties such the staff and long term customers such as account and mortgage holders would be also give a proportional stake in the bank from the remaining 50%+1 shares.

Well i think that all dole payments should be stopped immediately. I think free NHS health care and free education is a waste that we can no longer afford - get insurance. I also think that those who work for the government should have copper bottomed final salary pensions stopped and that MPs expenses should be reclaimed. Unf the worlds not fair.

This current round of banker bashing is the politics of envy pure and simple. 99% of the bankers around the world had nothing to do with the credit crunch - why should their pay be capped? Why bankers and no other profession (footballers, lawyers, pop stars, FTSE 100 board members etc)?

Deferral of a portion and paying in stock seems reasonable for traders of complex instruments (although that has happened for years anyway) but most work that bankers do does not "need years to see if it is profitable" - it either is or isn't immediately.

People would be better off discussing the bigger picture - how to reform bank capital rules to foster more stability. Make no mistake - that is the real issue, (and more bank capital requirements will naturally decrease bank earnings anyway and thus reduce bonuses). However take it too far and there will be a cost to living standards for everybody...

Bonuses for those few investment bankers in London and other major financial centres are a red herring. Do we honestly believe that if they had not been paid in the past things would be different now. The problem was poor regulation by Governments keen to take their cut of corporate profits and not the employees. I am not aware of any of these Bankers having done anything illegal or having broken any regulations.

Can those people who receive 4/5/6/7/8 digit bonuses and/or pensions up front, over time or at the end be truly said to deserve it

I don't think so - ever.

Particularly when those receiving such bonuses while branches are closing, staff are being made redundant.

It is a mistake to link bonuses to performance of the individual alone.

Bonuses should be provisional and proportional.

Provisions should be that the money in a bonus should not be awarded at the cost of other staffs jobs, particularly in a hypocritical effort to cut costs and improve efficiency.

That is to say that in all cases where cost cutting is required, bonuses should be cut from staff on a top-down basis before staff are made redundant.

So all the senior staff would loose their bonuses before they can get rid of staff.

I don't agree with taxing bonuses over and above normal tax rules, all this does it compel the parties to increase bonuses to compensate.

I do think that the bonus culture might be brought under control if they began investing in training and perhaps search for and staff perhaps promote staff with a reasonable salary who possess the natural abilities needed for senior positions rather than paying some ultra rich banker an insane and undeserved amount of money to do next to nothing,

I wonder how many of the seven deadly sins do these people commit? let's see... there is GREED, PRIDE, GLUTANY......

Some banks are publicly owned. We may (subject to the Law of contract) pay whatever remuneration we feel sensible for those. Most banks are privately owned. What they pay, and what they pay it for, nobodies business but their own. Sure they got the money in return for providing us with a service, as we got our money by providing our employers with a service. If we are entitled to tell banks what to do with our money, then out employers are entitled to tell us what to do with ours. Of course some people on this blog have bank shares, directly or through a fund- if they feel the staff are being paid too much they are free to either raise it at the shareholders meeting, or failing that to sell.
By the way nobody has to use a bank, other than a free current account for the salary to be paid into. No need for a savings account- there's a mattress. No need for a loan, there's patience. Sure life would be uncomfortable, but no worse than our grandparents had before mass banking. We should not take for granted the benefits that banks have brought to us in their search for profit- anymore than we should take for granted the benefits brought by the butcher, the baker and the brewer from the same motivation
As to whether great talent can be attracted without great rewards, we could arrange an experiment with minimal risk to the economy. First we buy a prominent premiership football club (Chelsea, Arsenal, Man. U.). Then we cap all remuneration to a reasonable level- say three times the average wage. Then we monitor the league position over three seasons. If the club has declined we know not to repeat the experiment with Banks.

Capping bonuses is not the answer and won't work because any institution, public or private must compete for talent and will therefore find other means to achieve the same end.
The answer is to legislate so that no bank is too big to fail, have adequate deposit insurance to protect the innocent and then if a bank fails through recklessness (i.e. poor risk management) let it go. The biggest single irritant in the whole affair is that fools (or "Masters of the Universe") were bailed out by innocents.
Over time, rewards for competence should become more evenly spread across banks and more reflective of good risk management (as the price of failure will be cataclysmic).
Shareholders will pay a lot more attention to bank's compensation structures if they will not be saved by the state.

Bankers bonuses should be capped, they receive good salaries and perks in relation to their underlings and the bulk of the working masses. Why should they be rewarded further with staggering bonuses for doing what they are paid for in the first place. It's obvious that the existing free for all bonus culture breeds greed. They say they are Masters of the Universe and we all let them, if they are not restrained it's only a matter of time till the next collapse of the financial system, the next time we will not be able to afford to bail out their arrogance and why should we. Breaking up the big banks would help as well, we might actually get some decent competition.