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RBS and Lloyds face mass staff exodus after bonus rulings

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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Comments

There are 35 comments at the moment, we would love to hear your opinion too.

  1. 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

  2. rearrange this well known phrase:

    deckchairs, on, Titanic, rearranging, the, the.

  3. “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.

  4. 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 …

  5. 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.

  6. 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.

  7. 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?

  8. 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!

  9. £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.

  10. 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…..

  11. Neil F Liversidge 3rd November 2009 at 3:14 pm

    So where will they ‘walk’ to? These cosseted fat cats need to get real. I am sick of hearing how they need to be protected from reality when millions of working class families have been plunged into dire financial straits by THEIR actions! In Leeds the bin men are on strike because the council is trying to actually cut their pay. They only earn a fraction of what the bankers earn even before their pay is cut and they will earn even less if Leeds’ rotten council gets its way. Ironically though, the same people who condemn the real workers for taking strike action will defend the fat cats to the death. Let them walk if they think they can. I am sure that there are thousands of companies just busting to take on greedy and irresponsible people with a track record of disaster. Maybe they could apply for jobs as temporary binmen in Leeds?

  12. the bankers bonuses have been a bone of contention for some time, but lets not forget who was and is responsible for the regulating of and the reformation of banking! se la vie

  13. With a cap on bonuses to those earning £39k+ these are hardly the people who got the banks in trouble. The people who got them in trouble are the high level directors earning six figure salaries. Not the little people. A lot of ignorance is present around this subject.

  14. The bonus issue (its only a delay) has been introduced to take attention from the fact that the major banks are being broken up not by the shareholders (eg us) but by edict from the non-elected of Brussels.

  15. I agree with the comments above. Just to add an analogy, when teh “credit crunch” started and the nbanks started collapsing, instead of the Titanic, I explained to clients that banks had been playing financial pass the parcel with the last one holding it holding the problem of purely securitised debt. One could now liken the bonus bashing as being like musical chairs, but as long as you’ve still got a chair, you’re getting overpaid for something someone without a chair would be happy to do for less. How few with teh big chairs would you have to wipe their bonuses to continue to pay some bonuses for those earning between £39k and say £75k as they are the people who keep society going NOT those that can be easily replaced by another manager happy to accept £150k instead of £2mill!

  16. They caused the initial problems with their greed the ordinary worker in the street would need to work his/her wholelife to earn what some of these individuals are to get as a bonus.No person is worth these obscene amounts. It is their arrogant attitude thet they deserve these payments, if there is an exodus good because the market is currently in decline see if they can get another job just like the rest of us.
    Why should they get a bonus for a job they do every other worker in uk would like to earn bonus for the job they do.
    If they do get a bonus why not have a facility inbuilt that if the levels fall they have to repay a percentage, seems they walk clear one year and the next there is a problem and there is no comeback

  17. This is purely an exercise in grabbing headlines to deflect press attention away from what the regulators did, or did not do, to allow the banks to get so close to meltdown. The vast majority of Bank Satff are sensible hard working people who have been badly let down. I await headlines such as “Freeze on pay for FSA and HM Treasury Staff involved in Banking crisis”. I think I might be waiting some time !!!!

  18. the £39K limit is ludicrous. As many have noted, and as an ex bank employee, front line staff get paid shockingingly low salaries and their bonuses just about bring salaries up to a living wage. Its the top guys that need their bonuses cutting – and I note they arent getting theirs cut – just deferred to 2012. Double standards yet again.

    On the plus side this is guaranteed to aggrieve more middle managers (aka prime labour supporters) so will hopefully mean another nail in the coffin of this sham of a government

  19. Let them go if they want. £39k is a helluvalot of money in anyone’s book. If you think it isn’t, you need a trip to the third world.

    Staff moaning about the limit sound like unionised staff. Let them eat cake 😉

  20. I think there is an argument that 39k is a relativelely low salary threshold for removing bonuses, but anyone who walks is probably saving a big chunk of redundancy money, so it will probably be for the best.
    Having said that, if I was one of those people, I would be considering a constructive dismissal claim!

  21. I suggest:
    1. No bonuses for anyone until all Government loans repaid. (How many billion is that?)
    2. All future bonuses that result in total earnings in excess of say £150,000 must be paid into a new entity, the Provisional Pension scheme. The ultimate value of the accumulated bonuses to be decided at NRD, with hindsight, depending on whether or not the business that generated the bonuses is still profitable.
    3. End final salary pension schemes for all institutions and companies operating a bonus system, be that private or public sector. If employees of a private sector business want a share of it, buy shares with wages.
    4. Free counselling for all ex bank staff members who decide to walk away from their new, “no bonus” pay structure.
    5. And while I’m on it, no expenses either, without a proper receipt.

  22. Neil F Liversidge 3rd November 2009 at 4:19 pm

    Surely it is a question of affordability, pure and simple? In all the firms I ever worked for, the employees only ever got a bonus if the firm could afford it. That applied no matter how hard one worked or how good one was at one’s own job. I once worked for 60-70 hours per week for two years with no rise or bonus to try and keep a sinking firm afloat. The banks owe the taxpayer a fortune and they now have a moral and fiduciary responsibility to husband their resources, not go paying out bonuses to individuals who somehow think they have an automatic right to the same. I run my own business and pay myself only as much as the company can afford, taking into account what is needed to ensure its financial stability. It is all about running a business responsibly, making sure that it in turn can fulfil its responsibilities to all concerned. The bankers, sadly, do not seem to grasp that their number one responsibility is to rebuild their strength and repay their debt to the taxpayer, not to stuff their own pockets. I suspect that the underlying problem is that they are all convinced of their own brilliance which leads them to believe that money just has to be showered upon them. It was, of course, that same deluded belief in their own brilliance and omnipotence that led them to create the banking disaster in the first place.

  23. There was a programme about Quangos etc last night that used the same argument to justify high salaries etc. to retain staff. The question I have is where will they go as there are only so many well paid jobs out there.

  24. How greedy bankers can accept huge bonuses this year is beyond my capability to understand, and for the government ( who from my view piont are after all the employer of a large majority of thse bankers) have allowed them to remain employed also befuddles my brain.I work in the financial services industry, and could be dismissed for not giving my client a business card,at the appropriate time.Yet further up the food chain it would appear that you can virtualy bring a nation to its knees without as much as a repremand. Nay!! be given vulgar amounts of money for doing so.how obsurd we are as anation to accept this .

  25. I work in a bank(boo!) and in my experience individuals who do not hit their targets/ are not profitable do not earn a bonus. In a number of cases they do not even keep their jobs. If a bonus is not paid to the individual who generated the profit then it will be retained in the company and may then be paid out to shareholders. What have they done to earn it. No bonus is no income tax which I understand the Government are looking to get their hands on to get us out of the economic mess we are in. Capping the method of remuneration is not the answer. It will just strangle one of the only ways that UK Plc will get out of the recession.

  26. Any bank saved from going bust by an injection of tax payers’ money is in debt to the national exchequer and should therefore repay that debt in full before paying any further bonuses to any of its staff (or directors).

    If staff on low basic salaries or those working in divisions that are making good profits want to gripe about it, then they should gripe to their managers.

    I don’t see why I should have to pay higher taxes so that these people can continue to receive bonuses instead of the institutions for which they work repaying what they owe to the national exchequer.

    If you don’t like it, then tough ~ seek employment elsewhere. How many other banks are eagerly recruiting RBS and Lloyds staff at the moment?

  27. Anonynous said “Let them go if they want. £39k is a helluvalot of money in anyone’s book. If you think it isn’t, you need a trip to the third world.”
    Unfortunately in MY world £39k is NOT a hell of a lot of money. I live in the first world, and have a mortgage and loans and three kids and a car to support.
    Luckily I don’t work for a bank, but I think it is grossly unfair to punish middle managers for decisions made at boardroom level. A lot of those people worked damn hard and deserve better treatment than being tarred with one brush by anonymous critics. The people to punish are Gordon Brown, Alastair Darling, the Bank of England and the FSA. After all it was their responsibility to protect the financial system. And ALL of these players earn a damn sight more than £39k (as does EVERY MP and every national newspaper editor too, who are only too happy to deflect blame from themselves).
    People will walk – to other banks (like HSBC, Barclays, Santander) and to rival firms like insurers, IFAs etc. There are always jobs out there, and these firms will be able to pick up the best talent. The losers will be us the taxpayer left owning banks which have become glorified councils, employing only those willing to work for a flat salary, with no incentives to perform well and no punishment for failure. Who will want to buy a business like that once the Govt gets round to trying to sell if off?

  28. Aside from the obvious losses, is it not odd that this government seem intent on crippling the two major Scottish banks – (i.e Bank of Scotland via HBOS via Lloyds and dear old RBS)? Are they mindful perhaps that if they lose the next election and Scottish devolution goes ahead, they will never again gain power in England? With a weakened, even decimated, Scottish banking sector, it will be much harder to persuade the Scottish people that they can afford to stand alone – hence giving Labour a chance to return in 5 or 6 years time (to preside over yet more lies, disasterous ‘leadership’ and yet more “lessons learned”.)

    If they do it across the whole sector then that theory goes out the window – but then UK finance will be out of the window too – and we can look forward to the opening of the ‘Museum of Banking’ in Threadneedle Street!

  29. Of course the bankers need their bonuses. Without them they can’t buy houses, and the housing market will collapse. Who wants their house price to fall? They WILL get their bonuses. Wait and see.

  30. My partner works for one of the saved banks. He accepted a long time ago that there would be no bonuses for them in 2009 without having to be told by the government.

    Having seen so many of his work mates being made redundant and seeing other struggle to find alternative employment; frankly he feels his bonus is having a job.

  31. Julian, for once I disagree with you. Performance related pay of a max of say 15% of earnings for lower earning staff makes sense and even up to about £60k per annum salaries it does. Bonuses from profit sharing and dividends however are a different matter I agree and they should be dependeant upon the company actually making a profit, which until the debt to the nation is repaid back will/should not be the case.

  32. I have to say I do agree with Paul Mumford. To be honest I really don’t understand how people can complain about strong performers being rewarded accordingly. We all know that some Banks have been “greedy” in the past, but now more than ever they need good people to lead them through these turbulent times and back into profit.

    As a taxpayer and, therefore, a shareholder of the Banks rescued by the Government, I want them to perform well and provide value to my investment. If a cap is put on bonuses, it will be very difficult to retain and indeed hire talent into the organisations. I suppose the situation is a bit similar to football – we know that some footballers are overpaid, but if your team was relegated, wouldn’t you want it to retain the best players to get back into the Premiership?

  33. I’m a middle manager in a bank that’s not been bailed out by the government. I work a 60 hour week, make million pound decisions and have substantially increased the income and profitability of my business unit in the last 24 months. I’m recognised by my employer as a top performer and win (non cash) performance awards a couple of times a year.

    When my bank posts profits at the end of the year I expect to get my bonus in line with that profit and my own performance as I have done every year until now. It’s absurd to confuse bonuses at my level to those of the big earners. My bonus doesn’t buy me a sportscar or a holiday apartment, it pays the mortgage and my bills throughout the year! My basic is £40K – make no mistake, that’s not a lot of money for the work I do. My annual bonus takes my salary into the realms of what I’m worth.

    Should bonuses be taken away across the sector I’ll most certainly walk. I’m confident I can match my income expectations in another industry. Or alternatively, for the same basic I could run all the way to the public sector to enjoy the 9 to 5 culture, clock in clock out mentality and the security of a pay rise every year. Talent drain? You better believe it. Financial Services will be rocked by the exodus from the sector. You want a brighter future from banking? Curtail those at the heart of it, not the workers that have been keeping things afloat.

  34. DISPROPORTIANATE responses……….

    Banks rule economies – SIMPLE AS THAT.

    How much would you pay for your own blood – that is the value of our bankers.

    Most of the commentors probably do jobs where they would not be missed.

    The bankers who are going will be missed by homeowners and businesses across the land.

    How do you all think we enjoy our lifestyles – MONEY

    How do industries survive and provide jobs – CAPITAL

    Who facilitates all this wealth creation – BANKS.

    Baby – bathwater – THINK ABOUT IT……….

  35. Well said Kate. Bank bashing of massive bonuses is one thing, but the implication that bonuses for middle income earners of say 40k should go for 2 years is completely stupid. It would be like the Army saying OK, let’s get rid of all the Sargeants and we’ll just have Privates and Officers. You remove incentives of the middle managers (that’s what those on 40k actually do) and and NOTHING will work.

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