The Royal Bank of Scotland (RBS) is proposing to pay close to £1 billion in bonuses to its staff, just months after it was rescued by a £20 billion taxpayer bail-out, The Sunday Telegraph can reveal.
The bank’s board has begun discussions about the bonuses with UK Financial Investments (UKFI), the body set up by the Treasury to manage the Government’s shareholdings in Britain’s ailing banks.
The scale of the plan is likely to increase public anger as the recession deepens, and add to the frustration of ministers. It comes as Alistair Darling, the Chancellor, announces in The Sunday Telegraph today his plans for an independent review of the way banks are managed, including the bonus system.
The review, which ministers hope will address voters’ concerns about big payments to executives, will examine the roles of directors and institutional investors and study how British banks compare with overseas institutions.
“We cannot return to business as usual,” writes Mr Darling in this newspaper. “It is in everyone’s interest to get banks’ governance right. It would be wrong to reward people whose excessive risk-taking brought the banks down, causing misery to millions of their customers.
Success should be rewarded. Failure should not.” The Chancellor will announce the detailed terms of reference of the review, and its chairman, tomorrow. Royal Bank of Scotland to Pay Staff £1 billion in Bonuses >>> By Mark Kleinman, City Editor and Patrick Hennessy, Political Editor | Saturday, February 7, 2009
THE TELEGRAPH: Bankers Must Accept the Big Bonus Madness Is Over
Am I in favour of radical curbs on bankers' salaries? You bet I am, says Martin Vander Weyer.
Years of hindsight will be required before we can pinpoint all the intersecting causes and unintended consequences that created the current economic crisis. But there's one factor that really has been more extreme and more pernicious this time than in any previous boom-bust cycle: the pay-scales of bankers.
In my view, the collective risk judgment and moral compass of the City and Wall Street became utterly distorted by the possibility that bank employees could earn life-changing bonuses, year after year and at little risk to themselves, by pushing markets beyond reasonable limits. That, I believe, was the crucial factor behind the unprecedented credit crunch, which is driving us towards something far more frightening than any normal recession. So am I in favour of radical curbs on bankers' pay? You bet I am.
Now let me qualify that opening statement. I used to be an investment banker. In fact, back in the Eighties when the seeds of the mega-bonus culture were sown in the City under American influence, I was as keen as anyone to know what my annual bonus was going to be. It never amounted to a hill of beans compared to today's millions, but still I know from the inside how the psychology works. And I saw how people were changed by the possibility of easy wealth – the aggression, the politicking, the boastfulness, the death of loyalty to the employer, replaced by loyalty only to small teams which might sell themselves from one employer to the next.
By the time I got ejected from it in early 1992, this was a pretty unpleasant milieu in which to work. But what I also know from the inside is that not all bankers are what the tabloids now call "guilty men". Many are sincerely troubled by a sense of shared responsibility for what has gone wrong. I recall a City lunch as far back as April 2005, when a group of senior money-market traders told me that the hugely lucrative "credit derivatives" market, a key component of this winter's financial cataclysm, was dangerously out of control. For another two and a half years, the banking community as a whole – whether cynically ignoring the risks, or blinded to them by the possibility of seven-figure personal rewards – carried on slicing, dicing and churning the debt instruments that turned out to be so toxic.
As a result, small businesses will fail for lack of bank credit, jobs will be lost, savings will be destroyed. The causal connection is direct, the damage is done – and the culture has to change. This can't be allowed to happen all over again in 10 or 15 years' time. Banks have to find a way to expunge the greed that corrodes their profession, and that won't be easy. But it will be much more effectively done if it happens from within than if it is imposed by government.
How so? Surely President Obama has shown the way by slapping a $500,000 annual limit on executive pay within banks that require "exceptional assistance" from the US government in future? But the key words there are "in future": the limits are not retroactive. Many firms that have already had some form of federal support are not caught in the net. Most likely, the restrictions will create an incentive for banks in the danger zone not to ask for government help until it's too late, while their best staff depart for other banks that can reward them without outside restraint. >>> By Martin Vander Weyer | Saturday, February 7, 2009
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