George Osborne says bonuses for staff at Government-backed banks would be "an insult"

There are various reports today suggesting that bankers and traders at banks part-owned by the Government are set to be given bonuses this year, with the Telegraph suggesting that Lloyds TSB - which has been bailed out to the tune of £17 billion - is "reportedly ready to give hundreds of millions of pounds to top executives and more junior staff."

Meanwhile RBS - now almost 70% government-owned - is also "reportedly paying six-figure bonuses to staff".

Shadow Chancellor George Osborne has been quick to condemn such a move:

“It would be an insult to struggling taxpayers across the country if the Government allowed banks that we part-own to pay out big cash bonuses. As I said at the Conservative Conference last autumn, to increase taxes on people earning £20,000 to pay the bonuses of someone earning £2 million is totally unacceptable.”

Business Secretary Lord Mandelson has waded in to say that banks offering "exorbitant" bonuses risk alienating the public.

Yet restricting the use of what is effectively taxpayers' money for bonuses and pay incentives is by no means a universally-held view.

As Conservative MP Mark Field (who represents the City of London) argued on CentreRight in October:

"Incentives at banks for those financiers whose success is crucial if taxpayers are to be promptly reimbursed for this bailout are to be abolished... A more rational approach towards banking bonuses would be for government to attempt to claw back some of the over-inflated bonus payments of past years (some of which is deferred remuneration yet to vest)."

And making a similar point was an FT editorial yesterday which said that whilst President Obama's curbs on pay for firms seeking taxpayer assistance was a "political necessity", it had "risks and drawbacks":

"If it discourages firms from seeking timely help, it may backfire. If the curbs are kept in place too long, retaining and recruiting people with the skills and the prodigious appetite for work that economic recovery will require may start to become difficult."

Jonathan Isaby

Comments

[Phil C]

I think there are two separate cases here.

There may be bank employees - eg branch managers who have done their job well and people such as traders who have made profits on their portfolios. Surely these people deserve to get their performance rewarded.

But executives who have driven their bank to the verge of bankruptcy and into virtual Government ownership should surely get nothing. Incentives for success surely implies disincentives for failure.

[ACT]

It is really beyond the wit of even Gid-the-fib to see the difference between the executives of some banks - formally responsible for many appalling, chiefly lending-related decisions - and, say, traders, or M&A suits, many of whom will of course have *made* money for their banks, as opposed to hosing it away?

If we accept (and it's surely where the debate should be at) that banks 'need' to be saved, then as night follows day, we need to accept that those who a.) made money for their banks in the past & can b.) make money again for them in the future are assets, keenly to be retained. And this is all the more pressing a public need, since we surely want to minimise the amount of public money given to the banks? Hence, equally obviously, the desirability of maintaining revenue generating individuals. What is wrong with Osborne that he can't see that? Seriously, can anyone explain it?

[GB£.com]

There is no logic is not paying big bonuses to traders in the non "toxic" products, who have a long record of returning big profits, as they will simply be headhunted by another firm, increasing the risk to taxpayers by weakening the bank.

Of course this is more about green-eyed monster politics, tarring all traders with the same brush for having the cheek of being successful.

You could equally say that it is fair to brand all politicians as lazy, self-serving, corrupt, centralising coprophiliacs because a small number are (or maybe) ;-)

[Iain]

I think Osborne misses the point again.

Ok if we had let the banks go bust no one would be picking up a salary let alone a bonus, but in light of where we are, it seems wrong that the people who have fulfilled their contracts over and above what was required aren't recognised for their efforts. The bonus issue has only become an issue because there has been a failure to sack the failed directors and non executive directors. Too few CEO's have walked the plank, let alone any of the other Directors who failed in their fiduciary duty. If there had been a cull of the senior management then people would have felt a price had been paid, and wouldn't feel so sore about paying a bonus to someone who merited it.

[Malcolm Dunn]

People who have the misfortune to work for insitutions that would have gone under without tax payer support are lucky to have their jobs. They are much better off than millions of their countrymen so for the time being they can do without their bonuses. Given the carnage in the City at the moment it is highly unlikely that these people would be streaming off to other jobs.
I thought ACT, that as your mate Mandelson for whom you have such a high regard is proposing something similar you would be in agreement with George. Or do you just oppose everything for the sake of it?

[GB£.com]

"Given the carnage in the City at the moment it is highly unlikely that these people would be streaming off to other jobs.

100% wrong Malc.

Top traders who have done nothing wrong, regularly return a profit, but are finding themselves unable to trade (reduced limits etc), get paid etc, *are* moving banks. Everyone likes a winner.

[bill]

I don't think you should get a bonus if but for the taxpayer it would not be paid.

[bill]

As a former recipient of City bonuses I might add that the bonus culture went mad a long time ago. I don't mind people paying massive bonuses to themselves when they have used their own money. However it is a different matter where bonuses are paid to employees who are using shareholders' money or clients money or borrowed money to play the markets. In those latter cases any remuneration package should reflect who is really taking the risk and over what time frame those risks and rewards can properly and accurately be measured.

[Stewart Geddes]

To pick up on Malcolm's comment above, if the governments had not stepped in, the banking industry would have had to sort out the problem, and it would have. As it happens, various governments, ours included piled into the market distorting and prolonging a problem that could have been sorted without recourse to billions of tax payers money.

Yes jobs would have been lost, but these jobs are being lost anyway.

I'm with the majority of posters here, there is a difference between the executive directors who have presided over the collapse of shareholder value (They wont be paid any bonuses and most have lost their jobs) and ordinary employees who have delivered acording to the incentive schemes laid down for them over a year ago. The latter should be paid.

[GB£.com]

What about school teachers, 100% supported by taxpayers?

Cameron said yesterday:
"We think it important that schools are freed to pay good teachers more"

.and yet for banks, part-funded by the taxpayer, the message is:
"We think it important that banks are *not* freed to pay good traders more"

Inconsistent, populist rubbish for the benefit of the tabloids.

[mikkimoose]

What about bank clerks on £18k a year? Are they to be denied the £1,800 they've always received?

[a-tracy]

mikkimoose - what are the terms that they get the extra £1800? Is their branch to be profitable? Are they to sell x no of extra products e.g. Insurance, pensions, loans etc. Do individuals ever lose it? If so why? Or is it just blanketly paid every year to every bank clerk? How can anyone decide if we don't know the terms of contract? If we are the biggest shareholders then of course we have a say via our elected representatives.

[bill]

Given the already mind boggling sums involved, how much taxpayers money would have to go into the banks before those advocates of bonuses for employees felt such bonuses were no longer justified?

[bill]

Some of you don't get it: the bonus culture was a large part of the problem.

[Jonathan]

When I worked for Lloyds Bank in the early 1990's our bonus was linked to three factors..

A) Our personal performance
B) The performance of the branch
C) The overall profitability of the bank.

When profits crashed (because of mistakes made at board level) our bonuses evaporated. Did we feel hard done by? Well yes. But in the midst of a recession, there certainly was not a mass exodus of staff at branch level because of it.

Fast forward to today. If the RBS and Lloyds announce a bonus to branch staff this year; it will effectively be the taxpayer who has paid. So not only have my taxes secured their job (with no such guarantee for mine) but I'm also being asked to pay them extra. yet, there seems to be no downside if we refuse.

The banks should save this money and either

A) Repay the taxpayer or B) lend the money out to credit-worthy small buisnesses, who are struggling (thus saving more jobs)...

Now obviously, skilled and highly profitable traders are in a different category. If no bonus is paid, they might jump ship (even in a recession) and take their profits with them. So however much the public might dislike the idea, some bonuses will have to be paid.

However, there must be no blanket bonuses. Only exceptional talent on the shop-floor should be rewarded; nothing for executives.
Indeed, no board member should recieve a penny piece or share certificate above their basic pay, until both the taxpayer has been repaid in full and the money-lending markets are oprating as normal again.

[The Bishop Swine]

I am not against junior staff receiving a bonus when a financial institution makes a profit. One of the better aspects of working for Nationwide was the annual bonus, which would be squirreled away to pay for Christmas. Of course the (cough) senior management would receive a rather more generous payment based on their salary.
Although it always struck me as odd that those who already received a very decent salary were in need of a large extra payment, the differential had to be maintained. What is unexceptable in my book is a company that has not made a profit and has had to be bailed out with Tax payers money, going through the motions of paying a bonus. What can be the justification? If anything the senior management of such companies should be paying back a portion of their very large salaries, on principle.
G.O. is right to moan and it may be that legislation will have to be drafted should such a seemingly clear abuse continue. However I do not know all of the factors involved, it could be that only those depatments that have been profitable will be rewarded in which case good luck to them.

[bill]

"Now obviously, skilled and highly profitable traders are in a different category. If no bonus is paid, they might jump ship (even in a recession) and take their profits with them.": good. Let them find someone else's balance sheet rather than the taxpayers' to play with. High Street banks need to review their operations and IMO get out of or severely restrict their investment banking operations. After all there are plenty of other ways fro them to lose money as they have proved in the past without resorting to trading non-core financial instruments.

[The Bishop Swine]

before anyone comments. Yes it should be unacceptable I make some errors over and over.

[ACT]

Well Malcolm, I've doubtless got a higher opinion of Mandelson than Gidders does these days. Funny that. As for disagreeing with him - why shouldn't I? I'm a Tory, albeit not a Tory of the smear-as-a-troll-everyone-I-disagree-with variety.

[Malcolm Dunn]

Your a Tory ACT? I find that very hard to believe.I doubt anyone can take any lessons from you on smeering anyone from you. The debacle on the Michael Howard thread was just one example amongst many.
Chad, to link teachers pay to traders is spurious even for you. One are paid by contract determined by central government the other has bonus negotiated with their employers. The banks are free to pay these people whatever they want they just shouldn't ask the tax payer to fund it.

[Malcolm Dunn]

Apologies for the typos written in a hurry.

[bill]

I am with you on this Malcolm. BTW, I don't know if it is ironic or simply the logical outcome of bailing banks out by public ownership but in the old days banks would ruthlessly cut the size of their workforces when they deemed it commercially necessary. Now they have taken public money to save them and we are not discussing job losses but the merits of continuing to pay bonuses. You could not make it up.

[bill]

I wonder how much further the bonus backers largesse would stretch? I can think of far worthier uses of money.

[ACT]

Um, what debacle? You are a deeply odd and obsessive person Malcolm.

[Jack Stone]

I agree with George Osborne and disagree with most on this thread.
I am afraid most seem to think its alright to pay bonus`s to bankers but not alright to pay those who work in the public sector a decent wage.
The face may have changed but the heart of the Tory Party is still with big business.

[Adam Hume]

Bonuses may need to be paid to good performers under the terms of their contracts. It appears that Mr Osborne is urging that such contracts should be broken. This is another example of his inexperience and expedient spinning. Someone should sue him for poor performance.

[Malcolm Dunn]

The debacle ACT when you claimed that Howard had misled the HofC on at least 6 occasions. When I suggested you name them you decided to depart the thread.
Perhaps I am odd and obsessive ACT, but you're a cheap and nasty coward and unlike any Tory I've ever met.

[ACT]

So no debacle then? Just you pining over a ConHome thread? Step. Away. From. The. Keyboard.

[Jack Stone]

Malcolm you sure like abusing people. Suppose the reason is because your arguments are so thin.

[robert]

Simply cheap populist remarks again from GO - need I say more - simplistic! But then again no doubt it ishat the focus groups told them!

[Super Blue]

Stone,

Your comments are 99% rubbish anyway, but:

Singular: bonus, plural: bonuses or boni.

PS Your arguments are positively anorexic and you are never positive about anything!

[The Bishop Swine]

"Simply cheap populist remarks again from GO - need I say more - simplistic! But then again no doubt it ishat the focus groups told them"

Better than no statement at all. I am all for G.O. taking the fight to the nation. A simple population needs simple black and white arguments. That's why the Mail and the Telegraph, the Sun and the (yuk) Mirror do so well.

[Mark Williams]

Why do banks need to keep traders? They are short of capital anyway and should be cutting back on their trading positions.

In common with many other posters here, I remember an earlier time when bonuses were linked to the performance of (i) the individual (ii) his/her department/division and (iii) the performance of the bank> If the bank was losing money the bonuses didn't get paid and some good performers left. But if a bank is losing money the good perrformers are going to leave anyway because any profitable banks will be able to pay more.

[The Bishop's Wife]

To draw an analogy from Home life. My children are paid an amount of pocket money week in week out. They receive bonus payments for a number of things. Gaining a merit at school, keeping their bedroom tidy etc. I would never dream of giving them extra money unless they played their part and "produced results". Its a simple and moral way of ensuring increased productivity. I would be a very poor mother indeed if when payday came I gave them bonus payments regardless of their performance.Mrs T. often ran the nation as if it was a large household and as a result she was well liked by the hard working majority. I believe she would not approve of people receiving unearned bonus payments anymore than I do.

[snegchui]

I am with Mark Williams and Jonathan.
A prerequisite of bonuses should be Bank Profitability, AFTER paying the dividend. To pay bonus and no dividend would lead to mass exodus of shareholders.
On my own:
Secondly, the issues of own-account trading need to be looked in the field of incentives and bonuses, how much of this was driven by the desire to hit targets (possible unnecessary churning and also possibly using client money )rather than rational trading to improve client portfolios?

[Malcolm Dunn]

Widdecombe was very good on Any Questions. Dismissed the idea of paying bonuses with tax payers money out of hand. Well done Anne.