City warns 10-year bonus delay plan will backfire

Tim Wallace
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A NEW plan to stop bankers receiving their bonuses for up to a decade will not make the system safer, recruiters, lawyers and bankers have told City A.M., instead undermining the use of bonuses as an incentive to work hard.

Currently big banks tend to pay out bonuses over three or five years, cutting payouts if performance gets worse.

But some members of the Parliamentary Commission on Banking Standards want that to be extended to 10 years to make bankers think about the long-term.

However the industry fears such a long deferral period will backfire.

“If bonuses payouts get extended for this length of time they almost become redundant – it is very difficult to imagine working in one place for five years, let alone 10,” said Hakan Enver from recruiter Morgan McKinley.

“Institutions will simply poach staff from one another, matching their bonus pot or offering an equivalent. It is a farcical idea.”

And lawyers fear it will undermine other incentives to behave properly.

“It would also increase the already significant disincentives for senior executives to whistleblow, in an environment where whistleblowing law does not give as much protection as it should,” said Elaine Aarons from Withers LLP.

Meanwhile banking insiders fear the move will make the UK a less attractive place to work, relative to other nations without this 10-year period.

“Bankers accept the need to defer pay to align staff interests with the long-term interests of shareholders,” said a source. “But when other countries are not doing this for 10 years, it just seems like another burden applied to London.”