In September 2009, Prime Minister Gordon Brown said that there SHOULD be a “clawback” system for bankers’ pay.
In February 2013, the EU was POISED to cap banker bonuses.
In January 2014, Prime Minister David Cameron said that a bonus COULD be clawed back but not basic pay.
In November 2014, Mark Carney, the Governor of the Bank of England said that bankers’ pay MAY need to be clawed back.
It would seem that life on the two planets which exclusively orbit only each other….Planet Bank and Planet Westminster….life moves slowly and is mostly populated by Modal Verbs….a sort of Mañana in suits!
Meanwhile, Investment Bankers continue to gorge themselves…..and all we can do is ….well…..nothing.
The primary reason for the outrageously high payments to the designer-labelled barrow-boy City slickers is the over-simple reward system. The City rewards the “ups” but does not penalise the “downs”. That encourages short-term risk-taking. A trader can make a large bonus from the profit on a deal but when that deal collapses or the share price falls, there are no sanctions.
In the good old days when life was simple, every day was sunny and back doors were left unlocked, a Life-Assurance salesman (remember those?!) would be paid what was known as “indemnity commission” on any contracts that he sold…… (Incidentally, all the large Pensions and Life salesforces were trashed because of mis-selling! The job was then handed to the banks)
If the salesman sold a £100-per-month policy to a client , he earned say £1,000 in “up-front” commission. Over the next twelve months, the client paid his £100 per month and at the end of the year, the salesman’s commission had been paid for. However, if the policy lapsed in the meantime, the commission was “clawed back” pro rata. That simple system discouraged selling policies to high-risk clients who were likely to lapse their policies.
That method of advance payment was called Indemnity Commission…..a sort of loan against future earnings.
With the sophisticated systems that all financial services companies now operate, it would be simple to create a payment system which took into account the often negative consequences of trading. Bonuses could be paid but with a “clawback” period during which the deals which had been made would be monitored.
It is now time for those nice people at the Bank of England, the Financial Conduct Authority’s latest incarnation to bare their teeth and take control.
The argument of having to pay obscene bonuses in order to hire “the best” has been used before. “The best” used to mean the most aggressive and most ambitious and the most likely to take shortcuts.
We now have the opportunity to enter an era where “the best” means the best-qualified, the most knowledgeable and the most professional. NOT the most crooked.
Mind you, the opportunity has already been around for a few years…… Perhaps tomorrow……