Big global banks are still paying guaranteed bonuses to new hires despite a
ban agreed by G-20 countries in 2009.
On Thursday, a survey published by the Institute of International Finance
(IIF), a global bank lobby group based in Washington DC, show that guaranteed bonuses
accounted for 8.5% of the average bonus pool for 2010 at the 51 biggest global financial
firms. This compares with 5.5% in 2009 and 7.1% in 2007. The IIF said guaranteed bonuses are used in the marketplace as
a mechanism to compensate employees who leave their employers to work for a
competitor for the lost unvested pay. As such, they contribute to a more
flexible market for talent, but multi-year bonus guarantees are not consistent
with the pay-for-performance principle and therefore the FSB Implementation
Standards recommend that minimum bonuses should only occur in the context of
hiring new staff and be limited to the first year.
The IIF said bonus guarantees to existing
employees are also becoming less frequent. According to the survey results, the
share of bonus guarantees to existing employees in the average bonus pool
decreased from 2.8% to 2.2% in the 2010 compensation round from the year before.
The IIF put a positive spin on the survey which it claimed shows major progress towards full implementation of the global standards
embodied in the Financial Stability Board’s (FSB) Principles on Compensation,
issued in April 2009. “Survey results indicate that the trajectory of change is
positive across the compensation agenda and that the wholesale banking industry
is now focusing on practical and detailed implementation of the FSB’s
Principles,” said Charles Dallara, managing director of the IIF, adding that
“risk adjustment of compensation,
deferred payouts and 'clawback' safeguards are now central to this reform.”
The survey was conducted by the IIF in collaboration with Oliver Wyman, an
international management consultancy firm, and with input from the IIF Working
Group on Compensation. This is the third and largest survey of its kind since
the IIF developed its own broad principles for industry compensation practices
in mid-2008. Oliver Wyman noted that the findings are based on responses from 51
leading financial institutions that together account for over 70% of the global
wholesale banking revenue pool. The survey involved 26 firms in Europe, 14 in
the Americas, 7 in Asia-Pacific, and 4 in the Middle East – Africa.
Compensation Reform in Wholesale Banking 2011: Assessing Three Years of Progress (pdf)
The Wall Street Journal
reports today that instead of making painful decisions years ago to set
aside more money to cover unexpected losses, some of Europe's leading banks and
supervisors devoted themselves to fending off tougher international rules and
thwarting more-intensive supervision.
Many large banks around the world lobbied
aggressively against tough new rules. But the French banks and regulators were
at the vanguard, mounting an aggressive campaign of la résistance.
Journal says they hopscotched the globe
petitioning against onerous banking rules. French banks often helped authorities
devise key policies - - in contrast to countries like the US, UK, Switzerland
and Spain that forced banks to raise tens of billions in new capital and to
restructure. Sometimes, French bankers and government
officials appeared to be reading from the same script.