The battle of the bonuses between the authorities and the bankers reached a new pitch yesterday. Sir David Walker, the former investment banker charged by the Government with reviewing executive pay in the financial sector, promised to end the banks' "old boys' club" culture and said some City bonuses were still "egregiously high".
"Boards aren't golf-club committees, they are challenging environments. The climate – the culture – has to change materially. Challenging the board environment, rocking the boat, is very important," Sir David said.
Some £6bn will be paid on bonuses this year, 50 per cent up on 2008. Sir David repeated his opinion that it was not so much the level as the structure of pay that needed reform. He said that bankers' pay needed to have risk-adjusted performance criteria, that bonuses should be deferred over a longer period, and stressed the need for clawback if there is misconduct.
Sir David recommended in July that bonuses should be delayed for three to five years. The review's reliance on non-executive directors and shareholders to monitor a voluntary code of practice was labelled "inadequate" by opposition parties.
He added that he was "very keen" on his recommendation that banks should publish their highest pay bands soon. "My own preference is to do it immediately. However, there is a question of international convergence. If British banks were required to make that disclosure ... we would be the only country in the world that is requiring disclosure of that kind."
Sir David's remarks come following the Government plan to limit the bonuses being paid to staff earning more than £39,000 in the banks it owns or part owns: Royal Bank of Scotland and Lloyds Banking Group – and as the bankers themselves mount a backlash against official attempts to limit their freedom of manoeuvre.
Both RBS and Lloyds have agreed to curbs on bonuses, saying they would not pay cash bonuses for 2009 to employees earning more than £39,000 and would defer 2009 bonuses for executive directors until 2012 – including long-term incentives – "to ensure that their remuneration is better aligned with the long-term performance of their banks", according to the Treasury. RBS faced an unprecedented public outcry over the £16m pension pot granted to its former chief executive Fred Goodwin when he quit last year.
Official irritation at bumper bonuses is ill-concealed. Lord Turner, the chairman of the Financial Services Authority, said last week that "the major trading banks we know are making large profits for exceptional post-crisis reasons". The City minister, Lord Myners, has suggested lack of competition has allowed some to charge inflated fees.
The current management of RBS argue that they have no option but to pay staff generous rewards while their competitors in the private sector are able to act freely. Goldman Sachs, to some astonishment, has earmarked £10bn for bonus payments to staff.
Stephen Hester, the chief executive of RBS, said yesterday that the bonus requirements made it more difficult for the bank – which has a large investment banking division – to recruit the right staff: "It's one of the additional obstacles that makes our job of recovering money for the taxpayer more difficult... although I completely understand the rationale for it." Mr Hester himself came under fire when it was revealed that he had agreed a £1.2m pay package for his services with UK Financial Investments, a government agency. The banks agreed to the new restrictions after the Treasury pledged up to £40bn in new capital for them.
Nor is the bankers' backlash confined to their pay and perks. Josef Ackermann, the chief executive of the giant Deutsche Bank and chairman of the Institute of International Finance, a lobby group, has become a sort of informal spokesman for the big banks and yesterday ridiculed official attempts to cut the banks down to size and interfere in their businesses. Mr King, among others, has said that a bank that is "too big to fail" is "simply too big". Mr Ackermann countered: "The idea that we could run modern, sophisticated, prosperous economies with a population of mid-sized savings banks is totally misguided."
The G20 summit in Washington called for a reform of the way bonuses are paid. Guidelines have been drawn up by the Financial Services Authority here and by the Financial Stability board in Basel.