Long term, bank chiefs will still get their payouts, despite the gestures
Outlook Barclays’ chief executive Antony Jenkins last week blamed “legacy issues” for passing on his bonus this year, but had he waited a few days he wouldn’t have had to resort to pointing to the sins of the past.
As if the fact that his bank was forced to hurry out its disappointing headline profit figure a day early wasn’t enough (thanks to the FT’s remarkably accurate preview), the apparent theft of thousands of customers’ data ought to have done the trick.
Of course, Ross McEwan at RBS had already said he’d muddle through on his £1m basic when he was appointed so it will now be most interesting to see what happens with Lloyds and Antonio Horta-Osorio (there won’t be any such gesture from HSBC). Mr Horta-Osorio’s bank might be looking in decent shape for privatisation, but it has plenty of legacy issues of its own. Payment-protection insurance mis-selling is your starter for 10.
However, even if Mr Horta-Osorio does join Messrs Jenkins and McEwan, what you can be sure of is that it won’t happen again.
These gestures were never quite what they seemed given all of them held on to the most-lucrative part of their bonus schemes – the long-term incentive plans (L-tips) that pay multiples of base salary and are therefore the biggest component of an executive’s package.
The voluntary abandonment (under public pressure) of annual bonuses by chief executives means a large majority of their pay is now linked to long-term performance. L-tips don’t pay out for three years at least. If Fidelity, the influential fund manager, gets it way it’ll soon be five years before bosses can cash out. So if banking leaders don’t think long term they won’t get paid.
The EU’s bonus cap will change that because it will inevitably shift a substantial proportion of L-tip money back on to these bosses’ basic, the Prudential Regulation Authority having ruled that L-tips will be caught by the cap (which limits payouts to 100 per cent of salary – 200 if the shareholders agree).
Banks will almost certainly seek to ignore public pressure and unveil enormous pay rises for their chief executives over the coming year to take account of this. Should they get away with it this will prove to them that they don’t have to make any “gestures” over bonuses in future. The annual bonuses attached to the newly fattened salaries might be made deferrable, and subject to clawback. Regulators will probably insist on this. But the damage will have been done.
The Banking Standards Review, headed by Sir Richard Lambert, is launching consultations on the creation of a new, industry-wide standards-setting body designed to improve the industry’s rotten performance in this field.
Ironically it will come just as we are preparing to jettison an increasing move of pay into the long term, something which might have prodded banking leaders to focus their attention on long-term standards for the long-term benefit of their institutions and themselves.
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