· 1 min read · Features

EU bonus cap: the HR director's view

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The UK Treasury has announced it will challenge the European Court of Justice’s decision to cap bankers’ bonuses to no more than a banker’s fixed salary or twice that level with shareholder approval. If this cap goes through, what HR challenges will it bring and will it affect retention and recruitment?

HR magazine asked two industry experts for their views. Today, Alex Rickard, head of employee propostion at investment management company Towry, gives her view.

"First, capping bankers’ bonuses as suggested by the European Court of Justice must be a good thing.

Implemented across the board, it will make a level playing field for all in the sector. This will mean the vision of the organisation, its culture, and career development opportunities become more important as reasons for joining a particular bank, rather than how much money can be made. This will encourage loyalty and a longer-term employee-employer relationship. Critically, this has to start with executive pay and how the team at the top are rewarded.

One of the biggest risks in changing incentive schemes is the loss of talent and the impact on internal morale, but the risk of unsettling staff is potentially greater when doing nothing to redesign incentive schemes, or having no clear and transparent strategy. Instead, having clarity on what the new measures will be and how staff will be rewarded provides opportunities to have real conversations with employees, rather than seeing them vote with their feet.

There have been some promising signs in financial services as many big bonuses start to disappear and institutions seek to change their cultures. Strong ethical leadership is the key driver of organisational culture, and this drives employee performance.

Clients, employees, regulators and shareholders are desperate to trust our banks, as they are a fundamental part of our society. If their leadership earns that trust and is rewarded for the right behaviour, the contribution of banks to society as ethical, profitable institutions will make them great places to work.

There is great talent in the banking industry. Given the right ethical environment in which to operate, with employees rewarded in a way that aligns the right behaviours, the cynicism will disappear.

But companies are results driven, and when the pressure is on people tend to cut corners, so reward schemes must reward good behaviour and penalise bad. Cultural change is at the heart of this issue, supported by reward schemes, and is in fact preferable to the imposition of new rules, laws or regulations."