Banning bank bonuses could hurt taxpayer
Analysts believe the political intervention that forced RBS chief Stephen Hester to relinquish his £1m bonus could scare off potential investors and high-flying bank executives from joining UK banks.
One analyst said the public hounding of senior executives would result in "the taxpayer cutting off the nose to spite the face" as the state-underwritten banks try and compete globally with rivals such as Barclays and HSBC.
Labour leader Ed Miliband told BBC Breakfast that he was not against scrapping bonuses in the long-term. "But people cannot be given bonuses just for doing their job. It should be for exceptional performance."
The Prime Minister waded into the debate yesterday by saying banks needed to show "proper regard" when remunerating executives. He told reporters in Brussels: "They need to do a better job of demonstrating how pay is related to performance. What I care about is getting the money back."
RBS shares dropped by 3.5% yesterday, wiping nearly £600m from its value, and Lloyd's saw roughly £1 billion lost on its stock when shares dropped 4.1%. Lloyd's CEO Antonio Horta-Osorio had already said that he will not accept his bonus, estimated at £2.3m, having only recently returned to the role after taking time off for stress.
Barclays chief Bob Diamond however is expected to take his bonus this year. Analysts say applying constraints on those banks that survived the credit crunch without a government bail-out will be hard. Diamond received a £6.5m bonus for 2010 and his base salary rose to £1.3m after becoming CEO in January last year.
HSBC CEO Stuart Gulliver received a £2.9m bonus for 2010, however according to reports, the bank want to pay him £13.3m for 2011, including a base salary of £1.2m and a bonus worth three times his salary and an long-term incentive plan worth six times his salary.
London bankers are expected to be awarded in total £4.2 billion in bonuses for 2011, the lowest in decade due to weak earnings, according to the Centre for Economics & Business Research Ltd.