I predict senior bankers\’ pay will rise

Because they\’re being told they must take on more risk:

A criminal offence for running a bank in a “reckless manner”

And risks do tend to be compensated for in pay packets.

Up to 10-year deferrals of bonuses

The cancellation of all bonuses for managers if a bank “requires direct taxpayer support”

In addition, executives will face having an increased proportion of any bonus shifted from share-based payments into so-called “bail-in bonds” that would be expected to bear the first losses should their bank get into trouble.

So there is no appreciation of the bonus from the organisation doing well but there are potential losses if it does badly. Those bonuses are therefore worth a lot less than they currently are. Either bonuses themselves will get larger or there will be more migration from bonuses to base pay.

Not sure the results here are going to be quite what some people hope they will be.

 

 

23 thoughts on “I predict senior bankers\’ pay will rise”

  1. Because politicians always meddle with things that know nothing about there is always the law of unintended consequences. Well, unintended from the perspective of politicians who will find out their plans were totally arse-about-face, complain, make a lot of noise, and change the law again. From the perspective of people who understand the issues there is nothing surprising about the fact that it will not go the way that politicians think it will.

    Is there any need for politicians when they always get things wrong. Anyone else in any other business would find their roles deleted if they were found not to be providing any benefit.

  2. Senior banker will only get paid after 10 years of hindsight.
    Hmmmm… there are very few decisions that still look good on that basis!
    No chance of any lending to small businesses either.
    Wouldn’t it just be better to let banks go bust? Give people one govt guaranteed bank (Post Office? RBS?). Outside of those, you’re on your own.

  3. That’s right, one gov’t bank(did I leave out guaranteed?). And when you need a facility for your business you’ll find ypourself referred to a panel that genuinely beloieves it is entitled, required even, to look for the public good or the common good. And if you say “there really isn’t one that I’m thinking of; I’m only trying to make a profit. There isn’t identifiable harm though” well that will make you mean-spirited and not deserving of the loan. Andd your employees, the ones you will never now employ…
    Yeah that’s what we need: a gov’t bank and no others.

  4. If senior managers have lots of bail in bonds, rather than shares, will they tend to act like bond holders, rather than shareholders? What effect would that have?

  5. But wasn’t one of the problems of the 2008 crash was that nobody thought that the activities were ‘reckless’ at the time? This is a recipe for killing financial services innovation.
    We need to create a situation where we don’t care if a bank goes bust, like most other companies. Then let them take the risk and stop micro-managing.
    I would, however, support the plan if there was one small addition. Given the systemic risk of government activities, and the taxpayer risk attached to government decisions, the same rules should apply to politicians.
    So, if the government makes a decision that is ‘reckless’ in hindsight, those involved go to prison. So, for example, anybody in the Labour government who supported the Climate Change Act – in jail. Any ministers involved in Labour’s failed NHS IT project – in jail. Gordon Brown for selling the UK’s gold reserve – in jail. Gordon Brown and Alistair Darling for running a 7% structural deficit during a boom – in jail. In 10 years time, coalition politicians who supported HS2 – in jail.

  6. No chance of ever getting a decent non-executive director for a bank now. The risk would just be too great.

    Why take the risk of jail for earning your

  7. No chance of ever getting a decent non-executive director for a bank now. The risk would just be too great.

    Why take the risk of jail for earning your

  8. No chance of ever getting a decent non-executive director for a bank now. The risk would just be too great.

    Why take the risk of jail for earning your 120k and four lunches a year ?

    (Please can you sort out your blogsite)

  9. Anyone else in any other business would find their roles deleted if they were found not to be providing any benefit.

    With the possible exception of major oil companies, where whole departments survive despite being a considerable hindrance to the operations.

  10. One government guaranteed bank? I recall our local 1970s Abbey Nat limiting their issue of mortgages to six per month (and only to long term savers). Mrs G and I had to wait a year before our turn came up.

  11. SBML: “Because politicians always meddle with things that know nothing about there is always the law of unintended consequences. “

    See upcoming inept (but no doubt hilarious) attempts to censor the internet…

  12. @Alex: “Given the systemic risk of government activities, and the taxpayer risk attached to government decisions, the same rules should apply to politicians.”

    Thread winner!

  13. The Bank of Flatland will always respond positively to a request from one of its commercial banks to borrow at its discount window. Its only proviso is that each such request be accompanied by the freshly-severed head of its chief executive.

  14. Saw some research the other day that employees apply a massive discount rate (30% to 50%) to deferred bonuses – and that was just with a 1 or 2 year deferral.

    Most people will see little or no value in a 10-year deferred bonus, because they will think the chance of actually getting it is so slim and dependent on circumstances outside their control.

    So the effect on behaviour will be next to nothing.

  15. I had no idea that my internet drivel, like that of the Murph, was being taken seriously by policy makers. I therefore hereby withdraw my demands for guillotines, tumbrels, etc.

    So anyway, how does this fit with governments urging banks to lend money to kickstart the economy when the banks are reluctant to? How does it fit with government handing out mortgage loans to pump the hosing market? How the hell do you objectively define “reckless”?

    Oh, right, you don’t. It’s a magic word like “obscene”. You have to moderate your behaviour now based on a guess regarding what a future jury might define it as.

    Sigh.

  16. What determines the pay of a bank executive? If it’s the minimum level at which the executive will choose to work in banking rather than whelk-stall management, then increasing the risk to the executive would tend to increase pay. If, however, it’s based on the maximum gross amount a bank is willing to pay to induce the executive to work for it rather than some other bank, the increased risk will have no effect.

    I suspect that the latter is a better description of reality.

  17. If, however, it’s based on the maximum gross amount a bank is willing to pay to induce the executive to work for it rather than some other bank, the increased risk will have no effect.

    Unlikely. In such a situation, it’s more likely to be based on the maximum gross amount a bank is willing to pay to induce somebody to step up from the position just below executive, where there is no risk of being jailed.

    In other words, there is a cost associated with the increased risk.

  18. I appreciate that it is terribly modern to abolish all restraint and concepts of rights in law, but even so, can we really make it illegal to be shit at your job?

  19. “Either bonuses themselves will get larger or there will be more migration from bonuses to base pay.”

    This doesn’t follow. Unless of course you assume that there will not – cannot – be any variation in the levels of total remuneration enjoyed by senior bankers, which I think is the idea that this report seeks to challenge.

    As for “risks” tending to be compensated in pay packets, I think not, as a general rule. Lollipop ladies “risk” the lives of children every day but I don’t believe they are compensated with this in mind.

  20. Why only bankers?. Are the legions of corrupt and jumped-up town clerks who get £1000) as CEOs of local authorities beyond reproach?.

    Leftist hypocrites. Whenever some poor sod dies on a building site, the TU gang are screaming for the Directors to be jailed. But 1200 (more) put down by Stafford NHS socialism and hardly a peep from the left and promotion for the top scumbag. And Blulabour agrees.

  21. Ian B @15 – Good point about future juries, I sat on a fraud trial for my jury duty and spent 2 weeks without a clue of what the defendants were supposed to have done let alone whether it was illegal or not.

    Quite how a layman is expected to assess whether a banker has behaved recklessly or not is beyond me. Any trial would become a personality contest and probably depend on the political leaning of the jurors rather than any interpretation of evidence.

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