Backlash over bankers' bonuses
Britain's bailed-out institutions are prepared to pay millions to staff, and government plans will not stop them. Brian Brady and David Randall report
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Independent Minds
A mutinous backlash is growing in Britain this weekend against banks' plans to carry on paying staff millions in bonuses as if the credit crunch had never happened. The Independent on Sunday understands that the Government intends to try to head off the rising tide of resentment against bankers by saying that it will be an "active shareholder" in the institutions receiving significant bailout cash, and say no to "excessive payments".
But the Chancellor, Alistair Darling, will stop short of an absolute veto on bonuses or a salary cap at taxpayer-rescued banks such as Northern Rock, Royal Bank of Scotland and Lloyds Banking Group. Treasury sources say he will also try to "coax" other banks to rein in pay and bonus packages. He will set up a review "which will examine how banks are managed. I expect the review to make recommendations about the effectiveness of risk-management by banks' boards, including how pay affects risk-taking."
Despite the recession, Britain's clearing banks will this month pay out millions to staff in bonuses. RBS, now propped up with £20bn of public money, wants to pay its staff almost £1bn in bonuses, it emerged yesterday. Critics contrasted the Government's "mere words" with the decisive and legally enforceable cap on executive pay and bonuses announced by President Barack Obama in the US. They dismissed the Chancellor's plans as not much more than a non-binding code of conduct, which banks are sure to flout.
Mr Darling's proposals were greeted with widespread dismay throughout the Labour benches. One former minister, Mark Fisher, said: "I don't think the public would like to see any bonuses going to these banks. This is far too modest an approach. Obama is getting nearer to the mark, but even that is quite restrained. Bonuses should be rewards for performing above the level required. These people underperformed, so we should be penalising them." And one minister said: "I would go further and take back any bonuses they have already been paid. At a time when we are asking people to pull together and contribute to the economy, we should make an example of these people."
Vince Cable, the Liberal Democrat Treasury spokesman, said the move was welcome, but it was "overdue, too vague, and not radical enough".
There is now growing concern within the Cabinet that the bonus culture is causing anger in the country, and will render ridiculous any attempts by ministers to tell voters "we're all in the same recessionary boat", while calling for sacrifices. The Leader of the Commons, Harriet Harman, announcing an Equality Commission inquiry into sexual discrimination in City bonus schemes, said: "There is something rotten in the remuneration system of the banks and finance companies. Men paying themselves millions of pounds of bonuses each – and then saying that they didn't know what was going on. Is anyone going to justify a system any more which allows for the old boys' network to fall back on a financial cushion of millions of pounds while helping to cause the problems that make others struggle?
"The Financial Services Authority ... is also conducting a review into bonuses. They will need to stop the bonus system encouraging those at the top taking risks with everyone else's money. It's right that those who've left the RBS have done so without severance pay and that there will be no board-level bonuses in the banks where the public purse has stepped in to secure their future. But the Equality Commission and the FSA reviews will clearly need to take things further."
The Children's Secretary, Ed Balls, told the conference: "We didn't act to save the bankers – as some have claimed – but to stop the entire financial system from collapsing. And [we are] demanding, in return, new lending and a new culture of responsibility – with an end to big rewards for failure."The Communities Secretary, Hazel Blears, said: "I don't support huge bonuses for people at the top who took some pretty irresponsible decisions.What I do say is that we need a banking system in this country that does its job; that lends money for mortgages and small businesses."
Mr Cable said: "What on earth has the Government been doing since October, when it stated it would exercise discipline over bonuses as a price for using £37bn of taxpayers' money to save the banks from collapse?"
Calls for banks to adopt a culture that better reflects the new realities have been given added impetus in recent days by two developments. First, the realisation that other countries were taking a far tougher line with bank bonuses than Britain. President Obama announced that executives at US banks receiving bailout cash would have their pay capped at $500,000 and would not be allowed to pay bonuses in anything other than share options to be exercised only after the public purse has been paid back. Other countries (see panel, right) have been equally robust.
Then it was reported that two of the banks receiving huge sums of taxpayers' money intended to push through substantial bonuses to large numbers of staff before any new rules prevented such payouts. Royal Bank of Scotland, which is being propped up with £20bn of public money and is 68 per cent owned by the Government, is preparing to make payouts to thousands of senior staff. And Lloyds, which has taken £17bn in rescue money, is to pay out hundreds of millions in bonuses. Barclays, which has tapped Bank of England loans and guarantees running into billions of pounds, is also thought to be planning to pay £1.7bn to traders in Wall Street under the terms of its acquisition of part of the collapsed Lehman Brothers.
Opposition to the bonuses has been building for some time. Last week's disputes over the awarding of jobs to foreign workers were seen in part as a manifestation of the feeling in many quarters that there is one set of economic laws for the banks and another for the rest of the country. On Monday, Barclays is due to announce profits that are likely to exceed the projected figure of £5.3bn. And on Tuesday and Wednesday, a number of high-profile bankers will face the Commons Treasury Select Committee. Those who will be questioned include Sir Fred Goodwin, former chief executive of Royal Bank of Scotland, Andy Hornby, former chief executive of HBOS, plus senior executives from Barclays, Lloyds, Abbey and HSBC.
The banking industry has always been adept at making the case for the bonus culture that so thoroughly pervades it. The argument that high rewards must be paid to keep staff has receded somewhat as the quality of those hired has been found wanting. Andrew Haywood, employment lawyer at Dawsons LLP, said: "Many workers in the financial industry are grateful to still be employed."
And every day comes further economic gloom. Figures released at the end oflast week showed that manufacturing suffered its biggest quarterly slump for 35 years. Companies in liquidation rose by 52 per cent.
Another former minister, Peter Kilfoyle, said the Chancellor should clamp down on bonuses immediately. He said: "Mr Darling needs to go into these banks and leave them under no illusions that they are effectively owned by the taxpayer and they should change their attitude accordingly."
Ban the bonuses: The IoS Banks Manifesto
We demand:
* Britain's banks, especially those receiving public funds, should immediately adopt a policy of voluntary restraint, in pay and bonuses.
* If taxpayers are paying, their representatives should decide on bonuses, and any earned should be given in share options, exercisable only when public funds have been repaid.
* Failure should not be rewarded. Bonuses paid in the past year by banks bailed out by the taxpayer should be repaid now.
* At a time of widespread job losses and sacrifice, it is vital that there is a not only a widespread perception of fairness, but the reality of it too.
The payouts
Lawrence Fish Non-executive chairman, Royal Bank of Scotland
One of Britain's best-paid directors despite being rarely seen at the bank's headquarters, Mr Fish received £6.6m in salary, benefits and bonuses in 2006 and leaves the crippled bank in April with a pension worth more than £1m.
Sir Fred Goodwin 50, former chief executive of RBS
Paid £4.2m in 2007, including a £2.86m bonus. During his nine years in the top job, Sir Fred led 26 takeovers and earned £30m. Although he waived a £1.2m payoff, he still has a pension pot worth an extra £8.37m.
Peter Cummings Former head of corporate lending at HBOS
By 2007 was earning £2.6m, including a £1.8m bonus. As the head of corporate lending, he was in charge of a loan book worth £109bn. The 52-year-old took early retirement last month.
John Varley Group chief executive of Barclays
Rejected a government bailout in favour of a £7bn cash injection from the royals in Qatar and Abu Dhabi but is facing criticism as share prices continue to nosedive. Mr Varley was paid £2.42m in 2007 and a bonus of £1.425m.
Bob Diamond Outgoing chief executive of Barclays Capital Investment Bank
The investment bank saw explosive growth until it took huge hits recently from the US sub-prime mortgage crisis. In 2007 his bonus fell from £10.425m to a relatively miserly £6.5m. He has pocketed £21.3m in bonuses since 2005.
Michael Geoghegan 50, chief executive of HSBC
Took on the top job in March 2006 and is known as a 'banker's banker' who worked his way up on the unglamorous retail side. Criticised for being conservative, HSBC is now seen as prudent. He received £2.955m in 2007 and a £1.915m bonus.
View from abroad: How other countries are dealing with the issue
United States President Barack Obama has limited salaries to $500,000 at bailed-out banks.
Norway: Banking executives taking action ahead of any government-imposed cap, promising voluntarily to freeze their salaries.
Netherlands Government has taken steps to limit "golden handshakes" to one year's salary for departing banking and insurance executives who received government help.
France President Nicolas Sarkozy ruled out bonuses for bank executives benefiting from state handouts worth £9.2bn. Executives at carmaker Renault SA have done the same.
Germany Government has capped annual salaries at €500,000 and prohibited bonuses and dividend payments for senior managers at banks taking government bailout funds. Deutsche Bank will next week slash bonuses for investment bankers and others by 60 per cent.
Switzerland Banks will announce bonus cuts of up to 80 per cent when they report 2008 figures next week.
Denmark Danske Bank has scrapped bonuses for its board and severely cut those for staff.
UK Restraints on executive pay at both Royal Bank of Scotland, now 68 per cent government-owned, and Lloyds Banking Group, 43 per cent public-owned. No formal restrictions on bonuses or pay for junior bankers at either company.
Israel Bank of Israel will publish guidelines on bonuses by the end of the month.
South Korea Executives voluntarily cutting salaries and bonuses. No government restrictions have been imposed.
Russia Salary caps for executives being discussed.
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Comments
When will the Government start taking some proper control with OUR MONEY?? The whole system needs to be restructured to prevent bonuses being paid in cash - they should be share options which are only exercisable a minimum of 5 years later.
No-one needs that much money, and if they do they've got more money than sense.
People working for a company at any level are dependent on the staff that support them. Often the people who appear to be star performers are actually taking credit for other people's efforts and insights. Bonuses are dependent on the company's overall performance as well as ones own, so even if you are doing well if the company as a whole is struggling you take it on the chin. That is the downside of the security of operating in a company. If the bankers believe they deserve their bonuses as individuals they should go freelance and prove it, they should also agree to be personally liable for any losses.
In reality the bankers are a deluxe version of the social security scrounger. Same attitude, bigger expectations.
From the wonderful Hull 4 London 0 album sleeve by the HouseMartins in 1986
For too long the ruling class have enjoyed an extended New Years Eve Party
whilst we can only watch, faces pressed up against the glass
The Housemartins say:
Don't try gate crashing a party full of bankers. Burn the house down.
Not a lot has changed in the intervening 23 years.
Are OAPs with no Pension other than the useless OAP pittance, and eaking out an existence from interest on Savings supposed to be grateful for the opportunity to contribute to the Unspeakable by donating that interest to them instead of to the usual utilities? Talk of rubbing salt into the wounds.
This government will lose the next election over this. But who will replace it?
And we call this democracy.
This is the type of amoral corruption and lack of personal responsibility that caused this whole situation to arise in the first place.
But secretly in my minds eye these guys may have benefited the planet by screwing up the industrial complex before it damages everything beyond repair, for a short time at least. :-)
This government is going to lose the next election over this. But who is going to take over? The traditional supporters of the priviliged.
And this is our precious democracy.
As Tax and Mortgage payers we are seeing little relief from the money we are putting in these instutions by way of interest relief. Paying money out to these people who have operated like leemings following the Americans into this subprime fueled nightmare just rubs salt in the wounds we are all struggling with.
I have just lost my job coutesy of this mess these so called leaders of the banking industry have walked us all into. Why should they take benfit at the expense of the hard working members of society.
It's time for radical change in the banking Industry and the time is NOW! Stop re-enforcing poor performance (judgement in the banks case) with obscence rewards.
As a taxpayer, I am really angry that the banks, especially those receiving bailouts from tax payers, still feel it is right to pay bonuses. They may argue that they are contractually obliged to do so, but I don't think that anyone is contractually obliged to accept. As a pensioner, I have seen the interest on my savings all but wiped out. So effectively I have a cut in my income. In addition, as a taxpayer, I will see my taxes rise so in effect I will be paying twice for others sheer recklessness. It seems that these days, there is no reward for reasonable personal responsibility and prudence. Prior to my retirement I was a Finance Manager with a major airline. After 9/11 when the airline industry was in severe financial trouble, not only did we all have to undergo major cost cutting excercises - working much harder for the same pay in most cases, but also took voluntary pay custs and as for the performance bonus - nobody expected to be paid these. What was important was that we took all the actions to ensure the company's survival and our futures.
My husband, who banks with one of the bailed out institutions is in the process of transferring his account as a form of protest. I wonder if others will do likewise.
SW. Feltham
Darling's plan is all words and no action, too wishy-washy, too vague. We need to hear definite clear-cut Obama-style policies to control the banks, but of course this govt. is and always will be in bed with the banks.
Staggeringly, a lack of regulation prevails even after the massive bailouts. Many banks are still not passing on the interest rate cuts to borrowers, so what is the point?
And yet savers are suffering. Why not have used some of those many billions to protect savers instead. Yes just give it to savers as compensation for less interest earnings.
This thing just gets worse by the day because of the government.
Now its Pay Back time - Lets have a few heads to stop up the leaks.
It seems that now they have had our money they now want our blood.
However the system has turned our blood to stone and you can't get blood out of a stone.
Look how a once enterprising nation has been defeated by a bit of snow!
We have been sapped in so many ways - are we going to continue taking it?