BANKERS will be allowed to enjoy their bonuses only more than seven years after being awarded, under new rules announced yesterday to keep financiers on the straight and narrow.
Regulators believe the rules would have cut the pension and bonus Fred Goodwin received after the RBS bailout.
Proposed rules to stop bosses delegating responsibility are intended to prevent the buck-passing when few bosses took responsibility for wrongdoing over PPI mis-selling, or libor fiddling.
However, tighter bonus rules could have the unintended consequence of pushing up bankers’ salaries.
It may prove hard to attract a top staff member by offering a bonus which may or may not be paid out in many years’ time, so normal pay rates could be hiked instead.
The Bank of England wants to ensure bankers focus on long-term performance rather than short term profit.
From January 2015, bonus contracts will include a clawback clause so the bank can take the cash back if a deal turns sour, or a banker has behaved badly in the years after it was given.
The rules also have more complex elements.
Typically when a banker moves jobs, any bonuses which have been awarded but not yet paid out are bought out by their new employer.
However, that means the banker no longer has to wait through the whole deferral process, and the incentive to behave well over the long term is lost.
The Bank is consulting on new plans to either ban the buy-outs, to force new employers to hold the payment to the same terms as the previous employer did, or to leave them with the old employer.
However, each of these has a weakness. In particular banning buyouts could make it almost impossible for staff to move from one employer to another.