Cameron calls for bank bonuses to be limited to £2,000 and contracts ripped up if necessary

David Cameron is getting touch on bank bonuses. This is what he has just told BBC1's Politics Show:

“Where the taxpayer owns a large stake in a bank we are saying that no employee should be paid a bonus of over £2,000.  People who work hard are seeing billions of pounds of their tax money being paid out and are rightly angry about it.  Gordon Brown told parliament that certain conditions would be put in place regarding bonuses in the banks that take taxpayers’ money and it’s quite clear that has not been done. Unfortunately the only action the Government has taken is to announce a review into bonuses which will not report until the end of the year.  Because of this dithering we could see bonuses being paid out for a second year to executives in taxpayer owned banks which is unacceptable.”

RBS is apparently limiting bonuses to £25,000. David Cameron says that the limit should be just £2,000.

The Conservatives are saying that the banks should go to the courts if necessary to challenge contracts that involve higher bonuses.  This is what a CCHQ press release states:

"If senior traders and managers claim that they are contractually entitled to big cash bonuses, RBS should refuse to pay them, and fight them in court if necessary. A bonus is a payment given when the company does well. RBS would be insolvent without taxpayer support, and the company is projecting an £8 billion loss. Paying bonuses now would make a mockery of the system, and RBS should challenge the contracts on that basis."

Comments

[GB£.com]

And how about limiting MP's 'expenses' to 2k pa during the credit crunch?

Hmmm, Cameron has a lot to say about bonuses but not a word about 116k of taxpayers money enriching an MP.

Funny that...

[Phyllis Crash]

How can you just rip up contracts?

[CityBoy]

COMMENT OVERWRITTEN.

[englandism.co.uk (Fully online, again)]

A bonus is paid in the real economy as a reflection of company profit proportional to business success or otherwise. I am at a loss as to how any bonus is payable at RBS unless the financial superbrains are confusing profit with turnover.

Yo guys. We turned over the British taxpayer big style so here is £25K. Don't think of it in any moral sense other than the money representing the blood sweat and tears of about five households which we are going to foreclose on anyway because the numpties worked for Woolies.

Let them eat cake.

[Mark Williams]

POlitician should be very wary about telling anyone to rip up contracts, particularly employment contracts. The banks can exercise their discretion not to pay any more than they are obliged to by contract, but telling someone to break a contract (particularly when the employee would lose in court) is like telling someone not to pay heir taxes.

[Patrick Ratnaraja]

GBE.com

Members of Parliament don't get £116K into their Bank accounts. The £116K includes staff costs.

Bonus is paid to Employees in the private sector to encourage them to do a better job. In the case of Banks some top Managers have not done a good job and therefore they don't deserve a big bonus.However if you don't pay these People a bonus, they will go soemwhere else.

Limiting Bonuses to £2K is just to get the lefties on our side. It is not about the core Conservative votes.

The Mr.Cameron is going we may end up with a Socialist Conservative Government. I know my statement does not make sense.The £2K limit on bonuses does not make sense either.

[w9tory]

Laughable. Obviously the views of someone who has never been an employer or indeed had a job, and who doesn't have a mortgage.

This will backfire - it makes us look like stupid 6th formers without a clue.

[jennywren]

This suggestion by Cameron is not only laughable it is potentially a catastrophic mistake. If the Conservatives under his leadership are going to meddle in the minutiae of commercial life in this manner they can no longer be said to be true Conservatives. If serious they will lose my vote and the vote of many others.

[ACT]

Presumably we're now going to hand back bonus-financed donations? Should be pretty easy to work out who those came from . . .

[CDM]

Any proposals to "rip up" contracts are puerile nonsense, at least in a country which values the rule of law.

[josh]

I thought he had a terrible interview. When pushed on IHT he once again went bright red and stuttered a lot. He came across as wanting to look after millionaires as a priority over the unemployed. The questioning by the interviewer was quite crude and he fell into the trap.

On bonuses. He sort of contradicted himself. He seems to be falling into a lot of laid traps from journos at the minute. Mind you, Tony Mcnullty fell into the same ones, however he is not hoping to the next PM.

As for ripping up contracts. This is not going to happen without a fight. So then we will be in a situation where tax payers money are paying for court cases. This is clearly not a great situation.

Tony Mcnullty scores 4/10 for his interviwe.

David Cameron scores 6/10 he was made to look a little silly by a very experienced journo. The thing is, if that had been Paxo, he would have been made to look like a complete moron.

[Darcy]

This is very worrying. Bonus payments in financial institutions are pegged to a range of performance metrics and the overall success of the bank (in this case) may not be one of them - how else do you motivate staff to turn around underperforming business units or product lines? If the individual criteria of bonus schemes are met, the bonus must be paid.

If the terms of the bonus schemes were flawed, save money by firing those who put the bonus deals in place, not illegally withholding payments to those who did their jobs effectively.

Suggesting that it is okay to breach a contract just because you don't like the terms sets a very dangerous precedent.

Surely it would better all round to offer bonus recipients a chance to convert their bonus payments to shares, purchased at a small discount, with a tax incentive to hold on to them until *much* later. It would have the same short term benefit, promote staff ownership of our financial institutions and avoid the unpleasant time bomb of creating an army of bank employees who loathe their employers and the Conservative party.

[YMT]

My view of Cameron just keeps plummeting, ripping up contracts? What a tool...

[GB£.com]

Patrick @ 15:03,
I was referring to the 116k housing allowance that Jacqui Smith pocketed.

Peter Oborne has publicly called the Home Secretary a thief and dared her to sue him, so you would imagine the leader of the Opposition might have a word or two of condemnation, but no, silence.

If anything displayed that Cameron is looking after the corrupt political class before all else, it is his timidity and silence on this issue.

But I agree with the rest of your point! More knee-jerk populism from Cameron's whose policy base seems simply to be what is one the front page of the tabloids today.

[The Huntsman]

The Conservative Party should have absolutely nothing to do with subverting the rights of people under private contracts freely entered into and the consequential overthrowing of the rule of law that is implicit in this populist proposal.

What an appalling suggestion from a party which is supposed to value enterprise and reward. This does Cameron no favours at all.

Every member of a family whose breadwinner has had his or her bonus forbidden by Tory Diktat will vote for someone else.

By all means persuade, by legislation if necessary, banks to mend their bonus schemes for the future, but to have the State intervene and retrospectively rip up extant contracts is monstrous.

[True Blue]

Those complaining about ripping up contracts, What Contract?
These banks would be bankrupt by now and all those contracted wouldbe out on their backsides if it were not for the bailout.
They should be absolutely grateful they have a job. to expect a bonus on top is completely outrageous?
What sort of contract stipulates that a bonus is paid regardless of profit or loss?
One should examine these so called contracts to find out whether they are actually a tool for employers to avoid paying NI taxes and pension contributions on salary by claiming it is a bonus.
This whole bonus system sounds extremely dodgy to me.

[Peter Buss]

I just can't believe what I'm reading with some of these comments. Some here are so woried about ripping up contracts and banning bonuses. Amazing when you are exactly the same people who are quite happy for legally binding contracts for public service workers relating to their pensions to be overturned at a stroke. But of course, I forgot, they work for the public service so they don't really matter - but if of course you work in the private sector which because of the banks has screwed the whole nation big time, then apparently its different.

As for me, I think Cameron is quite right - its simply not acceptable to the public to be bailing out these banks. Just let one of these people take the Govt to Court and see the reaction from the public. As for public sector pensions - they are not sustainable either and will simply have to be renegotiated - but be prepared for the fact that its not just so called pen pushers involved but nurses, teachers, police, etc etc.
And yes, I am a Tory - but one who is just relieved that at last we have a Leader with a bit of common sense who knows what is practical politics and what is not - the last one we had like that was Maggie in her first 6 years.

[True Blue]

I get the impression those fighting for these dodgy contracts to be upheld are actually bankers.
HunstmanL when you say "private contracts freely entered into" that may have been the case initiallu, but when my hard earned tax money bought these defunct banks, the contracts ceased to be a private and became subject to the public domain.
It is not Private money...It is MY MONEY. I want it spent on education, health nd defence and not on propping up the salaries of useless unqualified bankers who brought this country to its knees.
There are several decent and proper banks out there. and I have no problem with their bonus payments as they come from their profits.

[libertorian]

True Blue @ 17.01 -

"I get the impression those fighting for these dodgy contracts to be upheld are actually bankers"

Can you not imagine that some people may make a point of principle and not necessarily out of finanical self interest?

[Rob Atkins]

Don't bother posting on Alastair Campbells' blog. That crusader for free speech only accepts blog comment that supports him. So, yet another unreconstructed spin machine for the once great Labour movement. New Labour = Thought Police

[Sad London Conservative]

I'm really sad to say this but DC is talking complete rubbish. His argument is all over the place!

Just because the tax payer have funded the banks does not mean that you can start tearing up contracts. And why is a contract for a big bonus less valid than a contract for a small bonus?

Also, if one company refuses to pay bonuses we can watch their most talented brokers, traders and managers bugger off to non-publicly funded banks, thus condemning "our" banks to ruin.

Just because bashing bankers is popular doesn't make it right, policy by headline is just what we damned Labour for.

We, as a party, will not be taken seriously by the business world if we continue to talk rubbish like this.

[Jake]

This is plain ludicrous. Legally and ideologically.

First of all, while they are called "bonuses" and are linked to the performance of the company, they not "bonuses" in the true sense of the word. They are a part of a person's expected salary and employees depend on them. Indeed, without them a banker's salary would in many cases be inadequate. For example, on the same level a lawyer will be paid £200,000 without bonus while a banker will only make £120,000.

Secondly, English law knows no cause of action of "ripping up contracts". English courts enforce the law and that includes legally binding contracts. If employees are contractually entitled to bonuses, they will be paid. Taking them to court will only confirm that.

Thirdly, Mr Cameron thinks £25,000 is too much. Yet taking employees to court in a not less than stupid attempt to "rip up contracts" will cost the taxpayer far more in legal fees. An hour long hearing in the High Court with one barrister and one solicitor would cost more than £2000 to prepare and attend. And when the government looses, they have to pay the other side's costs too.

Fourthly, I do not know why Mr Cameron thinks he is qualified to be decide on the minutiae of running a global bank.

Fifthly, I would think a Conservative would think it inappropriate for a politician to decide on the minutiae of running a global bank.

Can the Tories please, please, please stop this populist rubbish. Conservatives are supposed to stand on the side of reason and rationality, not the anti-banking lynch mob.

[Stewart Geddes]

Sorry David, you are wrong. The people that are "entitled" to bonuses in banks have earned them by delivering results over and above what was expected and whose contribution has actually reduced the need for government support.

The bonuses to be paid here are not to directors or the likes it is paid to people who have an incentive scheme to encourage performance, and that has happened, many many bankers in the ordinary banking industry had a really good year last year, delivering well ahead of previous year.

What most of the critics here fail to understand is that the banking industry was brought to it's knees by a small number of people while mainstream banking remained (and still is) profitable.

Finally, if our government had not stepped in, the industry would have had to sort out it's own mess- and it would have, thereby saving the taxpayer billions of pounds.

[Mr Angry]

What a shame that Cameron has chosen to get "tough" with Conservative voters rather than on the disgraceful Geert Wilders matter.

[Damon]

This just shows how little Dave knows and understands about business. Very disappointing.

[Felicity Mountjoy]

Peter Buss: "Some here are so woried about ripping up contracts and banning bonuses. Amazing when you are exactly the same people who are quite happy for legally binding contracts for public service workers relating to their pensions to be overturned at a stroke. But of course, I forgot, they work for the public service so they don't really matter - but if of course you work in the private sector which because of the banks has screwed the whole nation big time, then apparently its different.

Bravo Peter!

[David Cooper]

Seems to me that the time for any discussion of this kind was before the government funding packages were effected. In summary, if the government did not make its funding conditional on the remuneration structure of senior banking employees being contractually varied, that structure is purely a matter between employer and employee and is none of the government's business. Morally it may stink, but DC would have been better concentrating his attack on the ill thought out government approach to the funding (and to give credit where credit's due, "contracts ripped up" is not his phrase nor CCHQ's).

OT: I trust that DC will be no less robust in his attitude to the cancellation penalty clauses that the consultants and participants in projects for ID cards, NHSIT, road pricing etc are supposed to have secured in their favour. If there is one special example of this government's neglect of taxpayer interest that does call for ordinary principles of contract law to be set aside, by bespoke legislation if necessary, this is it.

[Teesbridge]

I notice that pre-packed administrations are the Next Big Thing - a business owner flakes on his obligations, stuffs his suppliers, staff and creditors, then starts again the following morning with exactly the same business and a clean sheet, acquired for a quid.

If the financial services specialists think this is such a brilliant, professional and honourable wheeze, why doesn't UKFI do exactly the same thing to RBS and Lloyds and Northern Rock and Bradford & Bingo (and some smelly PFI deals while they're about it)?

No bonuses, and no fees to purblind auditors and parasitic management consultancies.

[Bill]

The irony is with the whole economic pack of cards collapsing our useless politicians soon won't have any options open to them; reality is breaking into their fantasy world.

[Sally Roberts]

"I thought he had a terrible interview. When pushed on IHT he once again went bright red and stuttered a lot. He came across as wanting to look after millionaires as a priority over the unemployed. The questioning by the interviewer was quite crude and he fell into the trap."

No he didn't josh - He handled an extremely aggressive interviewer with aplomb, even when the guy pushed him and pushed him and pushed him...hectored....interrupted and talked over him! I would have been tempted to deck the interviewer! David Cameron remained calm (and I suggest you need to alter the colour settings on your TV if you thought he was red-faced!) throughout.

[YourNameHere]

He says this, but as PM, he'd never do it. There are lots of workers in financial servcies who are paid by "total compensation", i.e., their basic is low, and bonus makes up a considerable proportion. These people aren't necessarily big earners... many are operations, IT, back office... what a joke.

[josh]

Good evening Sally,

I think me and my friends must have been watching a different interview to you. Why not watch it again, we have and I stick with my original post. He was flustered on the question of IHT. He attempted a side step to which the journalist (I agree he was hostile) was having none of it.

As for his blushing. He does it all the time. At his monthly repositioning conference the other week he went bright red (as observed by many on here). He does it quite often. Usually it is when he is asked a question on policy.

It is just my observation Sally.

Enjoy the rest of your evening.

[Chris]

WELL SAID, DAVID CAMERON!

The mood in the country is VERY hostile to the whole bank bonus issue.

Oh yes, I know that in practice he wont do anything of the sort when he is Prime Minister. But the point is that it captures the anger of the times we are in. Voters have reached the limit of what they are prepared to see happen to bail out the banks.

A lot of people on this board are rushing to the aid of the banks and the contracts. Have these people forgotten that we as Conservatives are supposed to protect the taxpayers interests from the state? Right now the bank employees only have jobs because of public money. Cameron must show that he will not stand by and see the public purse taken advantage of any more than it has been already. That fact should be uppermost in our minds.

[Malcolm Dunn]

Unbelievable comments on this thread! If the taxpayer had not intervened these people would not only not have a bonus they would not have a salary. DC proposing £2,000 is also wrong it should nothing at all whilst the tax payer is funding the bank.
If the staff of Northern Rock, RBS, B&B or Lloyds-HBOS don't like it. Tough. Find another job with a profitable bank . If they can.

[Utter disgrace]

"the disgraceful Geert Wilders matter"

Utter disgrace. A Livy live red snub to our friend from the Netherlands. Come along Dave which side are you on?

[Sally Roberts]

Thank you josh! Now get back under the bridge.

[Chris Paul]

Oborne is not worth suing.

But £2,000? Tear up contracts? Not all bonuses are related to the overall performance of a business. They may be related to an individuals performance, a team, a section, a division. And what's more there are things other than gross or net profits that companies might want to be rewarded. this is purely and simply Cameron phishing for bank customers to con.

[steve foley]

I have never been a Cameron fan but I salute him and back him 100% on this. A short act to declare such Contracts Null and Void and no more than £2K to be paid at anyone. That way the lowly paid Cashier or Clerk who has absolutely no influence on Bank policy gets an amount which to them is significant, the big bosses, dealers, etc who are to blame get what is to them Petty cash! (Which is more than they deserve)

If as some say these failures DO go off to the USA or elsewhere then GOOD RIDDANCE!

[Mark Williams]

Malcolm Dunn said:
"Unbelievable comments on this thread! If the taxpayer had not intervened these people would not only not have a bonus they would not have a salary."

Not necessarily so, and particularly so in the case of people at Lloyds. But the fact is that the government did inject capital into the banks and kept them going, so the contacts between the banks and other parties are kept alive. If the government wanted it otherwise they should have said so at the time the injected the funds and got the agreements of all parties involved.

The simple matter is that most people at the bank will be on discretionary bonuses, although in some cases there may be some guidance as to how the bonuses will be calculated.

There may be some people on contractual bonuses, although there will be very few at banks like HBOS, LLoyds, Northern Rock and B&B, but maybe some at RBS.

If the government tries to break these contracts, the banks will be sued and will lose in the courts so the banks will have to pay iup any no doubt with costs plus interest. Cameron is a fool to suggest that it might be otherwise.

This is not like the conditions in the public sector. Most public sector employees will have terms of contract that may be varied by the employer, just like evry purivate sector worker. It would for example be open to the government to switch the pension scheme from a defined benefit scheme to adfined conribution scheme as has happened to many in the private sector.

[snegchui]

"David Cameron is getting touch on bank bonuses" What does that mean?

Interesting comment earlier today that bonuses are paid on revenue rather than profit - what idiot(s) did that?

Tearing up contracts: Bad precedent, could say to Board in hindsight bad move to "guarantee" bonuses, how about you pay by relinquishing some some stock options?

What is possible is to issue a cut off at 1½ x Average Wage and no bonuses above that level of salary ( you should not be gasping for a beer on that money)
Bonus: For extra effort and target. Tell you what a lot of 25% bonuses are actually only 5-10% (if that) because people on 40 hour contacts who work 50 hours are actually just being paid for hours worked. Saving the banks money in o/t administration.
Think about it. The woikers are being gipped.
Up the tree a bit different parameters and should be on profit and not revenue.

Right to bring out into the open, reset the incentives.

[Adam Hume]

Tearing up contracts? I bet there is a lot of businesses that would like to do that! David Cameron is undermining the very basis of our laws and economy - the voluntary exchange of goods and services.

BTW, is Oliver Letwin willing to forego any bonuses due to him at Rothschilds? We should be told!

[Yet Another Anon]

Regarding tearing up contracts statement, it's the sort of thing that politicians say sometimes, usually not realising that they'll regret it later if they end up in a position where they might be expected to do it, usually then after a bit of legal advice they later declare that it was interpreted the wrong way, and what they were actually saying was etc.... etc...

If there is a contractual obligation then abandoning the contract would mean paying compensation.

[Malcolm Dunn]

Even by your standards Adam, a strange post. Last time I looked Rothschilds were not in receipt of tax payers. Do you really not get it or are just trying to score (very) cheap political points?

[Andrew Lilico]

It's easy to assert that these employees would not have jobs without the taxpayers' support, but harder to prove. In fact what happened was that banks that were not insolvent were instructed to receive government money. There is no guarantee that they would not have been able to continue in trade without that government money. And even if they had entered administration, there is no guarantee that all of the employees would have been fired. Many of them might have worked in profitable units that were transferred to other companies with bonus schemes intact. And even if they had been fired, they might subsequently have entered other jobs with companies that would have paid them more than their current base salaries.

All we really know is that they have contracts that entitle them to bonuses if they meet their performance targets, and they have met those targets. So they are legally entitled to their bonuses. Stating that they should not receive them is trampling upon the employees.

If we are going to trample upon contracts, why is this the place to start? Why not trample upon the contracts of the bondholders who were spared (inappropriately) by the government takeovers. Why should employees suffer ahead of bondholders?

[Opinicus]

There is no long term thought here just short term management.

We need a financial services industry its the last remaining thing we are good at as a nation. Not all banks nor all departments failed and those that didn't are making money even in falling markets. I know a hedge fund up 70% on the year.

I understand the public's need for revenge on the bankers and feel the schadenfreude as keenly as anyone. But its not the way to keep the talent in London nor to keep the City as the bread basket of this country.

Cutting your nose off to spite your face.

[snegchui]

Mr Lilico,
Did the banks have to take that instruction if they didn't have to? Barclays didn't but much moaning about the rate-backs to Gulf Sovereign funds they are giving.
Who started this farrago? Look at the Bear Stearns collapse a bit more closely? Who whinged to Euroclear about excessive cost of funding?
Yaaaaa:::
No, a winddown needs employees who suddenly are valued more than when the bumphumps ran it, they know where the stationery cupboard is. W
What is this legally? Are you telling me you support guaranteed bonuses? Really, what are the terms of your own employment? If they include this, it may explain some of your wilder excitements.
A legal contract is a legal contact and I would be careful of trampling on it: However I would look at the terms on which it was drawn to ensure both parties had full cognisance - difficult to prove or disprove but unsettling.
Sleep you well.

[Malcolm Dunn]

It is easy to assert that those employees would not have jobs,mainly because it's obviously true. Banks were not forced to take taxpayers cash as the example of Barclays shows. How long do you think Northern Rock or RBS in particular would have lasted without a tax payer cash injection?

[Ross Warren]

"Just because the tax payer have funded the banks does not mean that you can start tearing up contracts"

This poster is right.We must respect the law and lawfully binding contracts are a bedrock of our democracy. How silly is the notion that a contract can be just torn up when it stops being convenient. How would DC react if we started suggesting ripping up our mortgage agreements simply because we are having difficulty paying them? No Dave you are wrong. We cannot act like that because its an unlawful way of going about business.

[david brough]

Hilarious to watch the right-whingers abandoning their own zero-state ideology when supporting banker scum is at stake.

You don't realise that your world has died, do you?

[The Bad Plus]

If the Lloyd's merger is so bad, why did you vote for it Cameron and his Tory minions?

Cameron is a fraud.

[Mark Williams]

Malcolm Dunn said:
"It is easy to assert that those employees would not have jobs,mainly because it's obviously true. Banks were not forced to take taxpayers cash as the example of Barclays shows. How long do you think Northern Rock or RBS in particular would have lasted without a tax payer cash injection?"

Lloyds, RBS and Barclays were all instructed to increase their Tier 1 capital by the FSA in late 2008 as a belated response by the government to the economic downturn, not because of any losses that the banks had incurred but because the FSA decided the banks should have higher capital ratios.

If the banks had not taken the government cash and had been unable to raise equity in the capital markets, then the FSA would have either obliged them to dispose of assets or shut them down. In the circumstances it would seem inappropriate to require the banks to withhold bonuses just because the government had injected cash.

Bonuses are inappropriate where the government has injected cash and the bank has made a loss (RBS. HBOS), but it is more debatable at Lloyds (i.e. outside HBOS) because the merger was encouraged by the government, the remainder of Lloyds is still very profitable and the ongoing writeoffs appear to be limited to HBOS.

At banks like Barclays where the government is not involved, one would like to say it is none of the FSA's business, but clearly nobody wants to bail out Barclays at some time in the near future if they have just paid out vast bonuses.

[rugfish]

Where did our money go?

I am waiting for a politician to give the people an itemised breakdown of what the bailout funds have been used for.

How much is it, who got it, why did they get it?

The British taxpayers have no information on any of it except that the banks have it, yet despite government is giving it, we haven't a clue what it's been used for.

Why isn't the media asking?

Why are taxpayers not informed?

Why is Gordon Brown not being held to account for every penny of our money which he has given to the banking industry?

[shaunbu]

As a result of the Banks gross negligence and incompetence millions are losing their jobs not just their bonuses. BMW staff were laid off yesterday without a penny. They have no job let alone a bonus. Yet still the banks bellyache and see fit to use our money to pay bonuses. Not one penny of a bonus should be paid to anybody working for a bank accepting taxpayers money. Not one penny.
They already have their bonus - they get to keep their jobs. In any other walk of life they'd be in the dole queue by now.