Never mind our expenses, what about your bonuses?

You might argue that MPs have got a nerve attacking the City for its dodgy pay practices...

Last Updated: 31 Aug 2010

The latest outpouring from the Treasury Select Committee has emerged, and the MPs have come to the radical conclusion that the City’s bonus culture is partly to blame for the financial meltdown. Apparently, the fabulous short-term rewards on offer to the banking geniuses who traded in these hugely complicated derivatives incentivised ‘reckless and excessive risk-taking’ (like, duh). The report contained some harsh criticism of the City generally, and some of the banking bosses specifically. But however sensible its conclusions, MPs are a bit lacking in moral authority just at the moment...

As ever, the cross-party committee was happy to throw its weight around. As well as ill-designed bonus schemes, it also attached blame to non-execs, institutional shareholders, credit ratings agencies and regulators, for failing to curb the aggressive behaviour of the banks. It also slammed Lord Turner and the FSA, for not taking the problem seriously enough in its recent report, criticised City Minister Lord Myners for his incompetent handling of Sir Fred Goodwin’s pension row at RBS, accused the bank bosses (Goodwin, Hornby et al) of making hollow insincere apologies, and suggested Sir David Walker was too close to the City to review its practices disinterestedly. (Remarkably, only the press escaped censure - thus ensuring lots of nice positive coverage, perhaps?)

But although bonuses came under fire, the MPs aren’t recommending that the state-owned banks should stop offering them – they’re worried, quite rightly, that this would make it much harder for them to attract decent talent, and thus harm their chances of dragging themselves back into the black. Instead, they want a new system – longer periods of time before bonuses kick in, to make sure the profits made aren’t just temporary, some clawback provisions in case they’re not, and an overhaul of corporate governance to make sure pay awards are properly scrutinised by shareholders. Not rocket science, perhaps, but all pretty sensible ideas.

There are a couple of issues, however. The first is whether the City will listen – the committee has no legislative force, of course, so banks won’t be compelled to change unless the Government or the regulator steps in. If it doesn’t, then it seems quite likely that the City might just revert to business as usual once all this fuss dies down. The other is that these MPs are basically accusing the bankers of taking advantage of the rules of their pay structures for personal enrichment, without any thought for propriety. In the week of Expenses-gate, this sounds a lot like the pot calling the kettle black.

In today's bulletin:

Never mind our expenses, what about your bonuses?
John Lewis figures supported by new knickers
Editor's blog: Twitter? Twaddle, Part Two
Want to be an entrepreneur? Move to Scarborough
Cutting your expenses, with YouTube

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