David Prosser: Bankers' bonuses are still rewarding short-termism

Outlook Pirc, the corporate governance group, is unimpressed by the news that Royal Bank of Scotland staff sold hundreds of millions of pounds' worth of shares on Monday, on the first day they were allowed to do so since being awarded the stock for their performance during 2009.

Pirc pointed out yesterday that RBS bankers sold more than half their bonus shares the second they were allowed to do so, which isn't much of a statement of confidence in the bank's prospects, and that an exit of this kind after just 18 months isn't an advance towards aligning the interests of a bank's staff and its shareholders.

The good news is we have made the rules on bankers' bonuses more stringent since RBS announced a £1.6bn bonus pool for staff in 2009. The lock-in periods for many bankers are longer, particularly for senior executives, with provisions for share awards to be clawed back should performance subsequently undermine the basis on which they were made.

Bear in mind, however, that the stricter rules apply only to "code staff" – generally those whose activities are deemed to affect the risk profile of their bank. The provisions for non-code staff are less exacting. This reflects the principle underlying the regulatory crackdown on bankers' bonuses – that the rules should discourage bankers from engaging in short-term behaviour that might jeopardise the bank's stability in the longer term. Broadly, code staff are those whose activities are significant enough for that to be a risk.

Sensible enough, of course, but what about the broader principle? Shouldn't all remuneration be designed with shareholders' interests in mind? The fact that so many RBS staff have sold so much of the bank's stock so quickly suggests the remuneration policy for 2009 did not meet that requirement. And for non-code staff at the banks, that remains the case.

How we define the long term is an interesting question, by the way. In banking, pigeons do sometimes take an age to come home to roost.

Take Royal Bank of Scotland itself. It has just been sued over a package of bonds it sold to a Kansas credit union as long ago as early 2006. No doubt the bank will defend itself rigorously, but the point is that the potentially negative consequences of the behaviour of the RBS staff who sold those bonds is becoming clear only more than five years later.

Nor is the retail banking sector immune. Bank staff who sold several million customers dud payment-protection insurance policies over a decade or more got paid for doing so long ago – the true scale of their malfeasance is only now coming to light.