RBS and Lloyds face mass staff exodus after bonus rulings
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Cavendish Asset Management senior fund manager Paul Mumford has warned that a salary restriction on banker bonuses at Lloyds TSB and RBS could lead to an exodus of talent to their competitors.
HM Treasury today revealed significant restructuring plans for state-aided banks RBS and Lloyds as well as future proposals for Government fiscal aid. Part of those included rules that demand that both banks will not to pay 2009 cash bonuses to any staff earning above £39,000 and executive members of both boards will defer all bonuses payments due for 2009 until 2012.
Mumford believes the Government may be forced to enforce the bonus freeze imposed on RBS and Lloyds Banking Group across the whole sector to avoid a mass exodus of the banks’ staff.
He says: “The question the market may want to consider is whether or not the rest of the banking sector could be in for similar restrictions on cash bonuses, on the grounds that the remaining banks are now in a highly competitive position for attracting staff from their taxpayer-funded rivals.
“If it was perceived to create an unfair market advantage, we may find more surprises in store on the issue of bonuses, with limits introduced across the entire banking sector so as to even the playing field.”
But Mumford warns this is an almost impossible task: “The international face of the banking system is such that it would be all but unworkable to hammer the sector at large through the legislative system, or through regulatory or taxation measures. An international agreement would be required across key world markets, although the full force of such a policy would still be tempered by the position of offshore havens reluctant to play ball.”
He also questions the perceived notion that share bonuses rather than cash lead to long-term goals and commitment from staff: “While share bonuses may fit the current political mood, it is worth remembering that the biggest faller from the financial world-stage – Lehman Brothers – famously rewarded its staff with all-share bonuses.
“The reality is that heady amounts of paper can cause asset bubbles in a share price and equally encourage individuals to take on unacceptable levels of risk.”
CMS Cameron McKenna head of employee incentives Nicholas Stretch says: “The potential difficulty with this proposal is that UK investor guidelines have limited the number of shares that can be used for employee purposes to 10 per cent over a 10-year period. Although some banks have had massive share capital increases recently and so will be able to accommodate the extra pressure on their share capital, not all may be able to without getting special permission from shareholders.”
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Readers' comments (35)
David Newman | 3 Nov 2009 2:15 pm
They say we are in a recession and jobs are at a premium, yet whenever bankers bonuses are talked about being cut they say that the top people will walk, well if theres no jobs to go to let them walk, after all these "top" people got the banks into this position in the first place, so who, in all reality, would want to hire someone who had nearly brought a bank to its knees
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Simon Porter | 3 Nov 2009 2:54 pm
rearrange this well known phrase:
deckchairs, on, Titanic, rearranging, the, the.
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Steve | 3 Nov 2009 2:55 pm
"an exodus of talent"?
If these bankers are so talented, how come their actions lost their company so much money that it had to be bailed out by the taxpayer? I wouldn't want irresponsible employees like that in my firm.
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Anonymous | 3 Nov 2009 2:58 pm
The problem is that lots of real people earning salary's of £39k or more, that have worked hard, followed the rules, have mortgages, cars and familys to support are also now struggling because a real part of thier package has been taken away. Ok, if your on some of the much bigger salaries there is a debate to have ...
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Peter Herd | 3 Nov 2009 3:01 pm
The answer surely to this question is that bank staff lower down the line need be paid a reasonable wage as front-line staff are paid appalling rates of pay and rely on bonuses to make up their income. eg Branch staff of less then £15,000 pa. As regards to top staff a well-deserved reality check is in order and if they think they can get paid better abroad, I for one will pay for their ticket. Never again can greed bring an entire financial system to its knees. It is always the excuse of the greedy that loss of talent will occur as a way of fixing the system to get paid extraordinary amounts of money for reality little benefit to the masses.
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Martyn Young | 3 Nov 2009 3:02 pm
I think the Government should have done this across the boards of the banks years ago. So why didnt they? Simple - City earned the government too much money and as long as things were on the up the politicians could boast and brag about how wonderful our City was.
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Thomas | 3 Nov 2009 3:05 pm
Just let one of the Board Members dare to suggest they deserve a bonus - based on what?
Bonus based on profit made? Whoops no that won't work - What about bonus based on shareholder value? now let's see dividend cancelled and massive fall in share price, no probably can't justify that either?
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Mantra | 3 Nov 2009 3:07 pm
Do behave Steve!
The wealth management arm (IFA & Tied) made the bank a massive profit its the traders who made ludicrous bets that have lost the money. I'm all for apportioning blame but lets get it right!
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Anonymous | 3 Nov 2009 3:11 pm
£39k seems an odd level as this catches many middle managers in jobs within the banks that have had nothing to do with their downfall - in fact they are as much victims of this whole fiasco as the consumer. The chancellor & the press seem to have forgotten that RBS only very recently recruited new executives in on basic salaries of millions with guaranteed bonuses (yes its apparently true) which makes this latest move & the £39k limit appalling.
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Anonymous | 3 Nov 2009 3:13 pm
Talk about hypocrisy. The FSA are the regulators of the banks and they are culpable in allowing the banking crisis to evolve - yet it did not stop them awarding themselves 40% bonuses for the 2008 -2009 salary year. A lot of them earned in excess of £39,000. As for politicians.....
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