Prime Minister Gordon Brown told a room full of economists this morning that Britain was leading the way ‘in sweeping aside the old short-term bonus culture of the past’ and replacing it with a ‘determination that there are no rewards for failure [but] only for long-term success’. He also announced the appointment of Sir David Walker to review corporate governance at UK banks. All well and good - but at the same time, reports suggest that senior bankers at RBS are set to share a £1bn bonus pool, despite the ailing bank being on course for an eye-watering £28bn annual loss. Doesn’t quite seem to add up, does it?
Over in the US, President Obama has capped the bonus payments of banks that are receiving state support; but on this side of the pond, the Government has been conspicuously quiet. However, in the light of the latest RBS fiasco, it’s clearly been forced into action. Hence Brown’s comments this morning, and hence why it’s done what governments always do when they don’t really understand something – launched an independent review, to be chaired by City stalwart Sir David Walker (who did a similar job for the private equity industry in 2007, you may recall). Unfortunately, this is scheduled to take a whole year – so even if Walker comes up with anything concrete, it’ll be too late to affect bonuses for 2008, and probably even for 2009. Doh.
Indeed, the Government seems to be making a political pig’s ear of this bonus row (particularly in comparison to Obama’s sure-footed approach). The RBS situation is particularly embarrassing: the battered bank claims it’s legally obliged to make these payouts, particularly for staff it inherited with the ABN Amro takeover (yet another reason why this deal was a stinker). And despite the outcry this has caused, the Government seems unwilling or unable to override these obligations.
We can’t help feeling some sympathy for RBS branch staff who have worked hard to keep the company’s good name intact. And there’s even a good case for paying bonuses to bankers who have clearly made their employers money this year (and some have made lots). But the senior staff at these banks - who, let's not forget, have presided over the worst financial crisis in a generation, which has to count as a pretty catastrophic management failure - have to recognise that it’s just not politic for them to take big bonuses this year, even if they’re technically entitled to them. Such is the state of public opinion that it will do the industry’s reputation even more damage.
So the Government will be well advised to make sure they don’t – or they may find the electorate equally unwilling to proffer ‘rewards for failure’ by granting them another term...