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Banks Face 6 Billion Of Libor Litigation

Christian May is Head of Campaigns and Communications at the Institute of Directors.

It used to be that the easiest way to elicit thunderous applause from your fellow Question Time audience members was to ask “what about Iraaaaaaq?” These days, there’s a new villain in town and he’s pinstriped with fifty pound notes spilling out of his pockets. Yes, it’s the banker and his bonus.

The BBC sketch show Harry and Paul captured the public mood towards this personification of corporate excess in their superb Question Time spoof, with this observation from an audience member:

 “Yes, well, firstly, if the bankers the bonuses the bankers the bonuses the bankers the bonuses it’s disgusting…and secondly, if the Tories were really serious about it they’d tax the bankers the bonuses the bankers the bonuses at 90 per cent.” 

Cue applause and general agreement.

Like all good satire, there’s more than a grain of truth to it. YouGov’s 2013 report, Public Trust in Banking (to which the IoD’s Director General contributed) laid bare the extent to which the public distrust and dislike the financial services industry. 73 per cent of people consider the reputation of banking as bad – and this is the highest figure of the 26 industries whose reputations they analysed.  To put it in perspective, the next biggest villains in the public’s mind are energy companies, who are thought of badly by 62 per cent of people.

Perhaps most damagingly, just 17 per cent of people trust those running banks to tell the truth – and this figure falls to 13 per cent for investment banks. A whopping 78 per cent of the public agree there is an unhealthy bonus culture at the banks. To this statistical realty we can add the damage done to an already battered reputation by the miss-selling of products such as Payment Protection Insurance and the general perception that the banks are out to screw us.

This is the context in which a consensus has emerged that “something must be done” about bonuses. It has become a political and social issue of our time – spawning protests, campaign groups, worthy conferences, long publications and even the idea of a banker’s oath. The latest proposals from the FCA and PRA recommend putting in place a regime whereby bonuses would be deferred for longer, with greater possibility of some being clawed back if it emerges there has been management failure.

Broadly speaking, the principle of this approach is quite sensible. Indeed, one of the reasons why the IoD remains critical of the EU bonus cap is because it would result in base salary being raised significantly to compensate the loss, and it’s far harder to claw back money from a salary than it is a bonus payment.

However, in some circumstances executives could have bonuses clawed back up to ten years after they were awarded, making the UK’s regime amongst the toughest in the world. The regulators must consider carefully whether such a long period is justified, and what the consequences could be for the industry. The details of this proposal will need to be hammered out, and we will certainly be contributing to the consultation. The IoD has been vocal in calling for pay to be linked to performance and to the long term success of the business. We also maintain that pay and incentives should, within the confines of regulatory frameworks, remain the responsibility of company directors and, most importantly, of shareholders – who can hold such decisions to account.

What’s needed more than anything is a cultural transformation in the banking sector, and we are beginning to see an acknowledgement of this. However, for as long as we all continue to receive automated PPI phone calls it will be hard for the banking industry to free itself form its rock-bottom reputation. If the claw-back proposals do come into force, let’s hope that at the very least it focuses the minds of our bankers and reminds them that even if they feel immune to public opprobrium they’re not going to remain untouched by a new, post-crash regulatory environment.

52 comments for: Christian May: “The bankers the bonuses the bankers the bonuses”

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