ABI says "no longer business as usual" on banker bonuses

Tuesday, 06 December 2011 10:34

A major UK investor has called for radical changes to levels of pay and remuneration structures in the banking sector.

The Association of British Insurers (ABI), which invests money on behalf of around one in six UK investors, said, “It can no longer be business as usual.”

The ABI’s director general, Otto Thoresen, sent a letter to all five leading banks, Barclays, Lloyds, HSBC, Royal Bank of Scotland (RBS) and Standard Chartered saying that the ABI expected to see “significantly lower bonus pools and awards given to individuals! And that the balance between employees and shareholders had become “inequitable.”

The ABI supported calls in recent weeks from organizations such as the High Pay Commission, the CBI and business secretary Vince Cable that bonus pay should only reward successful performance and should be linked to the share price of the companies concerned.

The share prices of the leading banks in the UK, two of which, RBS and Lloyds, are part-owned by the UK taxpayer have fallen dramatically over the past 12 months. In August 2010 RBS shares were worth 54 pence, today they hover around the 22pence mark.

Barclays shares were worth 260 pence at the beginning of July 2011, they are now valued at 188p after a strong recovery from a recent low of 150p just a few weeks ago.
Similarly, Lloyds Banking Group shares touched 50p a share at the beginning of July but are now trading at around 27 pence a share.

However, these banks and many others are expected to pay billions of pounds in bonuses early in the New Year. Although city bonuses are expected to fall to £4.2 billion, the lowest level since 2002, the ABI has urged banks to bolster their capital buffers by cutting pay as well as dividends.

According to estimates by the Financial Times, HSBC, Barclays and RBS have around £8 billion earmarked for staff pay and bonuses within their investment banking divisions.

Banks have been urged to reduce the size of their balance sheets and protect themselves against the potential threat of contagion of the euro debt crisis and to prepare for the possibility of bank lending rates increasing and a drying up of credit.

On Sunday, the Deputy Prime Minister, Nick Clegg said that the government will publish new plans to stop unjustified pay in the private sector. However, many commentators believe the government will have little effect in effectively changing the remuneration policies of large companies.

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