Banks under fire as bonus season looms

Kieran Corcoran reports on the latest pay controversy

The Bank of England has called for tougher rules on bank bonuses to discourage the risk-taking and destructive activity thought to have been driven by large payouts.

Speaking to the parliamentary commission on banking standards, Andy Haldane, the Bank of England's financial stability director, suggested that bonus payments should be deferred for five to ten years in an attempt to emulate "the old partnership model" under which employees were heavily invested in the long-term fortunes of the bank.

Current rules, enacted after the financial crisis, require banks to defer payments for between three and five years, but Haldane insisted that "three to five years is far too short to capture the cycle in credit. We had roughly a 20-year boom in the run-up to this crisis, so measuring performance only over a three- or five-year window is far too short."

Leading banks including Barclays and J.P. Morgan are also expected to cut their overall payouts for 2013 following poor results and scandal respectively. New Barclays chief executive Anthony Jenkins said of the previous bonus regime: "We must never again be in a position of rewarding people for making the bank money in a way which is unethical or inconsistent with our values."

Goldman reversal

But, Goldman Sachs went against the grain by announcing an increased bonus pot for this year, putting aside $12.9 billion (£8.16 billion) in total to reward its staff for the last year; an average of $400,000 per employee.

The bank also faced intense criticism in response to their decision to delay bonus payments accrued over previous years until 6 April this year to coincide with a decrease in the top-rate tax band from 50 to 45 per cent. The move was reversed after critics, including Bank of England governor Sir Mervyn King, denounced the move as "rather clumsy and rather lacking in care and attention", adding that "in the long run, financial institutions, like all large institutions, do depend on goodwill from the rest of society; they can't just exist on their own."

Although Goldman Sachs bore the brunt of public opprobrium, a report by the Financial Times suggests that ten of the top 20 investment banks in the City were also considering delaying bonus payments to coincide with the tax reduction for high earners.

Doughnut fears

Although those expecting bonus payouts may worry about a 5 per cent difference in how big they are, a recent survey by recruitment firm Astbury Marsden found that over a fifth of London bankers were not expecting any bonus at all for 2012, a figure that has more than doubled since last year's survey.

Twenty-two per cent of bankers were reported to be expecting a zero bonus (a "doughnut" in banking slang), with 44 per cent claiming that interference from politicians and regulators was having a chilling effect on remuneration. Almost half of those surveyed also said that they would try to change employer if they received an insufficient bonus for the year's work.