UK Banks Face Heavier Bonus Crackdown
(The Telegraph) - The Bank has told City firms that it is considering changing the way performance is measured to prevent bankers being rewarded for making investments that bring short-term gain but are laden with risk.
The warning came as it was claimed that Barclays is planning to pay an estimated £5bn to its investment bankers this year, in spite of calls this week from Bank governor Sir Mervyn King for pay restraint.
The £5bn estimate would see staff at Barclays Capital receive average total remuneration of around £210,000 each. However, Barclays said that both total pay and bonus levels were yet to be decided.
Sir Mervyn told lenders to "limit distributions" and shore up their balance sheets, given the "exceptionally threatening environment".
Bankers' bonuses have remained high under the current return on equity (RoE) measure, but the Bank is considering switching to a return on assets (RoA) assessment, which adjusts for risk.
Two leading members of the Bank's Financial Policy Committee (FPC), Andy Haldane and Robert Jenkins, have advocated the change for some time. The Bank's Financial Stability Report suggests it may now be on its way.
The report said the FPC noted that "performance metrics, such as return on equity targets, that take little account of the risks taken to achieve them could be distorting incentives".
It warned banks that the FPC would "consider ... the extent to which such performance metrics influence remuneration".
The Centre for Economic & Business Research forecasts that City bonuses of £4.2bn will be paid this year, down from £6.7bn in 2010.