* Bankers favour fixed pay over bigger scope for bonuses
* Financial firms wary of public backlash as economy wilts
* Regulators say bonus cap has made sector less able to curb
costs
* EU response to scrapping restrictions remains unclear
LONDON, Aug 23 (Reuters) – Banks in Britain may be free
to award even bigger bonuses from January but new pay perks are
unlikely to help the country’s financial industry outshine its
rivals because top bankers are wary of swapping handsome fixed
salaries for uncertain rewards.
Scrapping the near decade-old cap on bonuses is a core plank
of Britain’s post-Brexit easing of rules the European Union
adopted to stop excessive risk-taking after taxpayers had to
bail out banks in the global financial crisis.
The outcome of a Bank of England and Financial Conduct
Authority consultation on the proposal to remove curbs on
bonuses is due in coming weeks. It would apply to payouts earned
over 2024, though bringing forward the start to cover bonuses
for 2023 is an option.
Ministers and regulators hope this will attract more
top-level bankers to Britain, and bolster London’s appeal as an
international capital hub as it competes with New York,
Singapore, and EU financial centres such as Paris and Frankfurt.
Bankers, lawyers and remuneration consultants say, however,
high-flyers may lose more than they stand to gain.
“Removing the cap isn’t going to attract more top bankers to
the UK because their pay will be more uncertain,” Luke Hildyard,
director at the High Pay Centre think tank, told Reuters.
According to the latest data from the European Banking
Authority, more than 70% of EU-based bankers earning over 1
million euros and subject to the bonus cap, were based in
Britain before it left the bloc in 2020.
A limit on bonuses of 100% of fixed pay – or 200% with
shareholder approval – has encouraged some UK banks to
supplement base salaries with bespoke and often undisclosed,
role-based allowances, or RBAs, to make compensation more
competitive globally.
This, regulators say, makes it harder for banks to cut costs
and absorb losses in a downturn.
But many bankers are expected to resist swapping guaranteed
pay for potentially higher bonuses, which can swing wildly
across economic cycles.
“I very much doubt there’ll be a dramatic shift back to the
pre-financial crisis days of low base salaries and high
bonuses,” Suzanne Horne, head of the International Employment
practice at Paul Hastings, told Reuters.
“We have a cost of living crisis, high inflation, industrial
action by the public sector unseen since the 70s … any
announcement of sudden changes to a bank’s bonus structure will
likely prove controversial.”
With Britain scrapping the bonus limit, the EU would become
a global outlier. Countries, such as the United States,
Singapore, Japan and Switzerland use other mechanisms to deter
excessive risk-taking, which Britain will continue to apply.
These include ensuring only a portion of a bonus is paid
upfront in cash, with the rest paid in bank shares that can only
be cashed in over several years, making it easier to “claw back”
awards in cases of misconduct.
TOXIC CONVERSATION
Bankers say that shining a spotlight on bonuses is never
good for them, particularly at a time of stretched finances for
millions of people. Some banks are already battling negative
headlines for shuttering accounts and failing to pass more of
higher interest rates to savers.
UK Finance, the industry body for banks in Britain, did not
respond to the public consultation, leaving individual members
to comment if they wanted to.
“You can’t imagine a more politically toxic subject for
conversation. This has never been a banking industry request and
we don’t want this to be the conversation in an election year,”
a senior banker at an international lender said, alluding to an
anticipated UK general election in 2024.
Quickfire compensation revamps will be difficult in
practice, since higher base salaries are baked into contracts
and require employee consent or a change in role.
“That said, it is possible that this consent may be more
than forthcoming against a backdrop of significant redundancies
at the banks in the first part of 2023, coupled with bank
collapses and mergers,” Horne said.
According to the public consultation, scrapping the cap
would support Britain’s pitch as a “place to do business”.
But it is unclear whether subsidiaries and branches of EU
banks in Britain would still be bound by the bloc’s cap and
whether the EU might respond, for example by making improved
access for London’s financial sector even less likely.
Simon Patterson, managing director at Remuneration
Associates, said the change might help U.S. firms keen to move
staff from New York to London, but European banks may eschew
changes to avoid creating a two-tier compensation system or
tempting the EU to demand relocation of more UK staff to the
continent.
“Not much will change where companies are moving staff to
operate in the EU,” he said. “The EU is, after all, ramping up
requirements that say ‘presence’ is not simply window-dressing.”
Others warned against overplaying the significance of
bonuses in Britain’s battle to grow its financial sector, still
reeling from the loss of big-ticket listings, such as Arm
Holdings.
“Compensation is a small point in the grand scheme of things
of a vibrant financial sector. The broader ecosystem matters
when it comes to competitiveness,” Christian Edelmann, Managing
Partner, Europe at Oliver Wyman, said.
(Reporting by Sinead Cruise and Huw Jones
Editing by Tomasz Janowski)
