The overall intention is to prevent a repeat of the 2007/8 economic crisis. A major contributory factor to that crisis, so we are told, is that bankers' remuneration depends heavily (sometime over 90%) on bonuses. Opportunities to earn big bonuses increase exponentially with high levels of risk that, in turn, encourage short-term gain over long- term financial stability.
I will just run through the main employment-based recommendations that I believe will cause mild to severe headaches for HR professionals, and which show at times a worrying lack of practicability:
- Disclosure of number (not names) of staff who earn more than £1 million - this will be meaningless out of context. A number such as ‘63' will give little away. Also, the information will be retrospective - bankers normally only tip the £1 million mark on receipt of bonus and, even then, the figure can perhaps be manipulated by deferring bonuses. HR headaches all round as this will have to be collated and calculated
- FSA can curb excessive pay deals - this possibly shows a misunderstanding of how bonus-driven bankers are paid. Bankers are not paid in the same way as footballers. The pay deals will rarely look or sound excessive, consisting of a modest (by banking standards) basic salary plus a discretionary bonus. It is only when the P&L looks good/fantastic that a large discretionary bonus may be paid. This is not a reflection of the pay deal being excessive, just the P&L being high on the credit side. Bankers, particularly traders, are not excessively paid if you just look at their contracts
- FSA rules will limit minimum bonus deals to just one year - this is frequently the case anyway, and ‘minimum bonus' is a flexible concept at the best of times
- Bonuses can be clawed back if performance is poor - this seems naïve and difficult from an HR perspective. Lawfully clawing back bonuses will necessitate snappy contract drafting, definitions and guidelines as to what ‘poor performance' means and nerves of steel for HR practitioners. If the recruitment market turns round, and bankers are looking to leave and escape restrictive covenants, what better opportunity than claiming an unlawful and unreasonable clawback of bonus on arbitrary performance grounds
- 40%-60% of bonuses deferred over three years and at least 50% paid in shares - this is genuinely unattractive. This will have to be applied wholly across the board as, if there is a loophole, a 100% cash bonus would be a huge incentive to join a competitor
- Remuneration Committee should have direct responsibility for high pay deals - this is a little unspecific although it might act as a moderating influence on desk heads awarding high discretionary bonuses to keep the troops happy
- If the annual report gets less than 75% approval, the chairman of the remuneration committee will face re-election - more power to the shareholders but the practical impact will be limited I suspect.
HR practitioners could well be on the very sharp end of implementing these measures. Although I believe they are mainly token gestures, the consequences of, for example, any bonus clawbacks will be felt by HR before anyone else.
The irony is that the one measure Walker, the Government, and everyone else steers clear of, is limiting remuneration. There is good reason for this. If no one in banking could earn more than £2 million per annum total remuneration (and it is reputed, for example, that Roger Jenkins of Barclays earns in the region of £40 million), the exodus from UK plc to the Far East (and elsewhere) would lead to major congestion in the first-class departure lounges, with very few bankers left in London to do the banking.
David von Hagen is a partner in the employment group at law firm Winckworth Sherwood
