Quantcast
Viewing all articles
Browse latest Browse all 4527

Bank of England warns bankers to get used to pay cuts

Employees unlikely to see same returns following industry reforms

Bankers should expect to see their salaries cut as business models are adjusted to fit with industry change, Bank of England’s, Sir Jon Cunliffe has said.

Speaking at Chatham House on Monday (20th October) the deputy governor of financial stability said that there had been a “sluggish adjustment” in pay since the financial crisis and that wage bills may need to “further adjust”.

He said there had been a change in the way the banking profession is viewed by society and bankers should “not expect to be popular.”

“The latest polls put bankers at the bottom of the class – only marginally above politicians. It is a hard truth but it will be some time yet before trust between banking and society is established,” Cunliffe said.

In an analysis of how banks’ profits had been shared between bankers and shareholders before and after the 2008 crisis, and the bailouts of the Royal Bank of Scotland (RBS) and Lloyds Banking Group, Cunliffe said bankers had received a larger share of their organisations’ profits, than shareholders.

“Since the crisis, for the industry as a whole, employees have received a larger share of a smaller pie relative to shareholders,” he said.

While the sluggish adjustment in pay may suggest that returns in banking will improve in the future, Cunliffe said industry reforms which discourage high-risk activities and reduce leverage mean banks are unlikely to see the returns on equity that they saw before the crisis.

Banks now need to rethink business models to look at reducing their higher risk activities in areas such as bonds, commodities and currencies, he said, which is where some of the highest paid jobs are within the industry.

“Many banks, reacting to both low profitability and regulatory pressure, are continuing to shrink these operations,” said Cunliffe.

“And as the data suggest the average pay bill in banking is skewed very heavily towards the top-earners, such as principal risk takers in investment banking and trading, this should both restore return on equity and reduce the pay bill.”

Simon Hills, executive director at the British Bankers Association (BBA), in charge of prudential capital and risk, said the banking industry had already made moves to tackle remuneration.

“There has been significant change to the way bankers are paid in recent years. Cash bonuses have fallen substantially and many senior bankers are now paid more in shares than in cash. This discourages risk-taking that could undermine the business’s future,” he said.

“Meanwhile, frontline staff are increasingly rewarded for high customer satisfaction levels – not for the number of products they sell. However, we think it’s absolutely right that if shareholders do not support the remuneration policy of any bank they make their concerns clear,” he added. 

Image may be NSFW.
Clik here to view.

Viewing all articles
Browse latest Browse all 4527

Trending Articles