The boss of Britain’s financial watchdog has told shareholders to get tough with banks if they want to cap giant bonus payouts.
Martin Wheatley, the chief executive of the Financial Conduct Authority, said the competition for talent, which bank bosses cite as the reason they need to pay huge pay packages, was “self-perpetuating”, adding: “The trouble is if you just accept that you can never actually change this.”
Wheatley, who marks a year in charge of the FCA next month, told the Evening Standard that investors “have started to grumble in quite a sotto voce way. They are not really getting in there with big sticks.”
Wheatley’s comments add to the rising frustrations among politicians and regulators that banks are not sufficiently reforming behaviour in the aftermath of the financial crisis. The Bank of England yesterday revealed it is proposing new rules that could see bonuses clawed back from reckless bankers up to six years later.
Some lenders with large investment banking arms, such as Barclays, are still paying staff more than they distribute in dividends. Sir John Sunderland, the head of Barclays’ remuneration committee, is facing calls to quit from investors while the bank’s investment arm is set for a radical overhaul that will see thousands of jobs go.
Wheatley admitted that the advent of monthly “allowances” to keep overall remuneration flat when bonus amounts are capped at one or two times fixed salary under new European Union rules “completely subverts the system”.
He added: “It is not a good outcome, but it is legal within the structure that was created.”
But he doubted the suggestion of Andrew Tyrie, chairman of the Treasury Select Committee, to defer bonuses for as long as a decade is workable, especially among junior or retail sales staff, as pay rules are being driven by Brussels.
Instead Wheatley suggested the industry could learn from several American sports leagues, such as the National Basketball Association and Major League Soccer, where salary caps have been imposed.
“It is interesting the leagues had this big problem a few years ago where pay was taking up an ever bigger quantity of revenue of the club. What happened there was the regulator came in and said you can only pay this percentage of your total income,” he said.
“It is bizarre in a sense that banks just seem to be able to pay more and their owners, the shareholders, seem to accept that they will take a smaller take of profits each year if the banks decide to pay it to themselves.”