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News : Global Economy Last Updated: Oct 21, 2011 - 9:21 AM


Big global banks are still paying guaranteed bonuses to new hires despite a ban
By Finfacts Team
Oct 21, 2011 - 7:39 AM

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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)

French Banks

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.

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