Bankers need bonuses to create incentives to behave well, and the EU’s efforts to stamp them out are harming this goal, the Bank of England’s Andrew Bailey said last night.
Stepping up the prudential regulation authority’s campaign against the bonus cap, Bailey argued that the cap was a “bad policy”.
He told the City of London’s banquet at the Mansion House: “Let me be blunt, the bonus cap is the wrong policy, the debate around it is misguided, and the best thing I can say about allowances is that they are a response to a bad policy.
“I will not win friends in some places for saying this, but it dismays me to see a debate which is at times so divorced from the heart of the matter, which is setting appropriate incentives by putting a meaningful amount of pay at risk.”
Bailey wants bankers to receive bonuses for good performance, but for the payouts to be given out over many years in shares so that bad behaviour can be punished with the removal of shares.
In this way, a banker’s payout is tied to the long-term value of the bank.