The FSA is expected to publish its code on remuneration this week and has already confirmed it will clamp down on bonus structures that encourage short term risk-taking.
CMS partner Nicholas Stretch says banks will have to increase salaries to attract and retain staff if bonuses are stripped.
He says: “There has been talk of doubling salaries, in effect, giving a guaranteed bonus. This could have a knock-on effect on pension contributions and termination costs, where one year’s salary is not uncommon. Increasing banks’ fixed cost base could make shareholder losses worse when something happens and banks need to retrench.”
Stretch adds that it would be unfair for the FSA to create automatic sanctions against long-term guaranteed bonuses.