LONDON — Banks, including those bailed out at the height of the 2008 financial crisis, are under intense pressure to curb annual bonuses in light of the worsening economic climate.
The so-called bonus season for workers in the City traditionally sees traders and banks’ senior executives handed bumper pay awards — sometimes running into millions of pounds.
But amid a worsening economic outlook for the country, as well as the eurozone, United States and China, calls for bonus restraint when the majority of awards are paid in January are rising fast.
“We need stronger banks not larger bonuses this winter,” Chancellor of the Exchequer George Osborne told parliament on Tuesday.
Osborne’s words come as activists from the Occupy London anti-capitalist group continue to camp outside St Paul’s Cathedral, close to the London Stock Exchange, almost two months after starting a protest.
And earlier this week, the Association of British Insurers (ABI) sent letters to Britain’s listed banks, including Barclays and HSBC, to express its “continuing concern with remuneration across the banking sector.”
The ABI, representing major investors in the banks, wrote: “In conclusion, it is our members’ view that it can no longer be business as usual for this remuneration round.
“They expect to see significantly lower bonus pools and individual awards given the current market circumstances. It is essential that all banks take, and are seen to take, a responsible approach.”
Bank of England Governor Mervyn King has meanwhile urged banks to cut bonuses and shareholder dividends before building up their cash reserves.
Royal Bank of Scotland and Lloyds Banking Group are facing the strongest pressure to rein in bonuses, with the two bailed-out lenders struggling to recover despite winning state-injections worths billions of pounds.
The government owns 83 percent of RBS and almost 41 percent of Lloyds.
Prime Minister David Cameron last month said his government might prevent RBS from paying out hefty bonuses, after reports suggested that the rescued lender would hand out £500 million.
He said that figure had not been agreed upon and the Conservative-Liberal Democrat government would have a “very big influence” on the bonus payments handed out at RBS this time around.
The coalition government has already imposed a small tax on bonuses, affecting the £6.5 million awarded to Barclays chief executive Bob Diamond for his work in 2010, in order to help bring down Britain’s large public deficit.
With large sections of the public angered by the prospect of more hefty payouts, the Centre for Economics and Business Research estimates that the latest bonus round should shrink to £4.2 billion from £6.7 billion in 2010/11.
But the CEBR also claims that cuts to bonuses have been offset by sizeable increases to bankers’ wages. It added in a report earlier this year that the City risked harming its competitive edge by slashing bankers’ pay.
The independent research group noted that “excessive regulation on bank pay, and heavy-handedness with taxation would only accelerate” a shift of financial services abroad, notably towards the East.
AFP journalists cover wars, conflicts, politics, science, health, the environment, technology, fashion, entertainment, the offbeat, sports and a whole lot more in text, photographs, video, graphics and online.
Raw Story is a progressive news site that focuses on stories often ignored in the mainstream media. While giving coverage to the big stories of the day, we also bring our readers' attention to policy, politics, legal and human rights stories that get ignored in an infotainment culture driven solely by pageviews.
Founded in 2004, Raw Story reaches 9 million unique readers per month and serves more than 30 million pageviews.