The speech by Mark Carney, the Bank of England governor, on November 17 in Singapore caused some serious ripples in the banking pond. Among his bolder proposals was the docking of bankers’ salaries.
Considering the Libor manipulation scandal and the more recent exposure of currency traders chatroom secrets, Carney pointed out that the fines for such behaviour were obviously not working to deter the potential culprits.
Indeed, the Bank of England is not the first institution to worry about the bankers’ vivid imagination when it comes to their own remuneration. Earlier this year, the EU capped bankers’ bonuses at 100 % of salary, or a maximum of 200% with an explicit approval from the shareholders, to prevent disincentives.
The Bank of England also targets these bonuses, however, in a diametrically different way: if wrongdoings emerge, bonuses that were already be paid out will be “clawed back”, even if these have already been spent. But, should these bonuses disappear, there will be hardly anything to retrieve: “It is unfortunate (…) that new European rules to cap bonuses (…) have the undesirable side effect of limiting the scope for remuneration to be cut back,” said Carney.
After the EU introduced this cap, banks started exploring alternative ways of rewarding their employees in order to circumvent EU rules. In October 2014, the European Banking Authority (EBA) found the so-called “bankers’ allowances” that were mushrooming in the UK, to be in breach of the European Union’s bonus cap. Other forms of non-bonuses and boosted fixed pays are still out there, though.
Without the possibility to go after bonuses, Carney now suggests rewarding bankers partly “through payment in instruments other than cash,” ‒ most probably in a form of “performance bonds” ‒ and in the case of undesirable behaviour leading to a fine, the bonds owned by the responsible staff will be taken from them and used to make up for the damage caused. Some have called this statement a mere warning shot, not easily reconcilable with the existing EU rules.
In the new college, bankers’ pay is overseen by Commissioner Věra Jourová.