The City must engage positively with Labour’s proposals on bank bonuses and pay reporting, the Institute of Directors said today. Simon Walker, Director General of the IoD also supported Ed Balls' drive for greater competition in banking:
“Labour have made some serious proposals and the banks must respond constructively. Senior bankers occupy positions of significant importance to the economy, so we support the principle that bonuses can be clawed back for serious wrongdoing. We agree with Ed Balls that performance-related pay is a vital tool in making executives focus on the long-term success of their bank, rather than one year’s profits. Ten years is a long time for a bonus to be vulnerable, and clawbacks of this length should be reserved to matters where there is a significant on-going risk. In general, conditions under which clawbacks can happen must be very tightly defined and relate to actions which can be clearly shown to have damaged the bank.
“While the case for clawing back bonuses is clear, extending the idea to fixed pay would likely run into legal difficulties. When the Financial Conduct Authority publish their full guidelines on the revised remuneration code for financial services firms, we hope they encompass a full range of effective incentives as to how bonuses might be awarded.
“Balls is right to push for greater transparency in reporting on pay and increasing competition in the sector.
“We think it would be useful to publish numbers of staff in a range of pay bands, rather than one crude figure of those earning more than a million. This should be part of wider measures to give shareholders clearer information about how much is going on employees, directors and dividends. As the Shadow Chancellor says, the Competition and Markets Authority is investigating competition in banking, and we hope its recommendations bring about a more competitive market for the benefit of consumers, the wider economy and the reputation of the financial services industry.”