G-20 Bonus Plans Risk Chasing Away Top Employees, Bankers Say
Sept. 8 (Bloomberg) -- The Group of 20’s plan for globalrules to rein in bankers’ pay may cost lenders top performersand limit the freedom of companies to set employee rewards,according to the British and German banking associations.
“We are concerned that any suggestion of caps onindividual pay deals could pose a real risk of chasing talentfrom one financial center to another,” said Angela Knight,chief executive officer of the British Bankers Association, inan e-mailed statement.
G-20 finance ministers and central bankers agreed on ablueprint for changes to financial services regulations,including global standards on pay, Sept. 5 in London. Detailedproposals, scheduled to be presented at a meeting of heads ofgovernment Sept. 24-25 in Pittsburgh, will suggest how banks canbe forced to “prevent excessive short-term risk taking.”
Finance chiefs agreed that a global pay code should includeforcing banks to “claw back” cash awards if earningsfalter; better tying compensation to long-term performance andbase pay; deferring payments and disclosing more on what theyhand top earners, according to a Sept. 5 statement.
The idea of clawbacks was also questioned by the BBA.
“Some people will move on, some will leave the countrywhere the bonus was paid, and some will have spent the money,”Knight said.
Germany’s BdB, which represents more than 220 banksincluding Deutsche Bank AG and Commerzbank AG, opposes bonuscaps because such decisions should be made by individualcompanies, said Manfred Weber, the organization’s head,yesterday in an interview with Deutschlandradio.
“The main task generally is not only to create more rules,but to agree on better, more intelligent rules that must also beadequately executed by regulators,” he said.
‘Sufficient Flexibility’
Governments across Europe are facing popular pressure tocurb bankers’ pay after financial institutions, including RoyalBank of Scotland Group Plc and Commerzbank AG, were bailed outby taxpayers following the U.S. subprime mortgage crisis in2007. Since then, European firms have announced more than $495billion in writedowns and losses and 140,000 job cuts, accordingto data compiled by Bloomberg.
G-20 ministers asked the Financial Stability Board, aBasel-based panel of regulators established this year, toexamine whether bonuses should be limited to a percentage ofprofits.
The City of London Corporation, which represents U.K.financial firms’ interests, is “reasonably relaxed” about the G-20 proposals, and the threat of a bonus cap “has probablypassed,” said Stuart Fraser, the group’s policy chief.
“Sufficient flexibility is being given for individualgovernments to decide what’s most appropriate for them,” hesaid. “They don’t want to constrict bank lending in the shorterterm. Any targets to be set will be done over a number of yearsso as not to create any indigestion in capital markets.”
Banks Rise
The 63-member Bloomberg Europe Banks & Financial ServicesIndex rose 1.5 percent yesterday, led by a 4.5 percent increasein shares of London-based Lloyds Banking Group Plc.
The G-20’s drive is being weakened by optimism that theglobal recovery is gaining strength, and policy makers don’twant to interfere with that, said Robert Talbut, chiefinvestment officer at Royal London Asset Management Ltd., whomanages 32 billion pounds ($52 billion).
“The more stringent you want the restrictions to be, theless easy it will be to get unanimity, and without unanimityit’s incredibly difficult to see things changingsignificantly,” he said in a phone interview. “No one regionwill want to put its banks at a competitive disadvantage.”
‘Exodus From Banks’
Under the finance ministers’ plan, banks will have to usemore of their profits to boost capital and lending, whileimproving the quality of capital they hold in reserve. Thestatement also calls for banks to develop “living wills” thatoutline how organizations can be carved up if they fail.
The G-20 members are Argentina, Australia, Brazil, Canada,China, France, Germany, India, Indonesia, Italy, Japan, SouthKorea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, theU.S., the U.K. and the European Union.
“We’re going to see an exodus from banks to hedge funds,private equity and long-only funds,” said Clayton Heijman,founder and CEO of Darwin Platform, an Amsterdam-based providerof hedge fund services. “Anyone with talent and entrepreneurialspirit is going to leave”
To contact the reporter on this story:Kevin Crowley in London at kcrowley1@bloomberg.net
Last Updated: September 7, 2009 19:01 EDTSource: Bloomberg
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