In U.K., days of big banking bonuses may soon be over

Mirroring popular sentiment in the U.S., U.K. bankers may feel a squeeze in their year-end bonuses in the shadow of a global recession.
Written by Ina Muri, Weekend Editor on

This time of year is like Christmas all over again for a certain few bankers, whether they’re in London, New York or Hong Kong. But the days of big bonuses might soon be over, The Guardian reports.

In response to the credit crisis, public anger toward investment bankers' bonuses is growing in the U.K. British politicians have entered the debate, and the Royal Bank of Scotland’s CEO Stephen Hester handed back his bonus. His predecessor, Fred Goodwin, recently lost his knighthood.

Questions are growing as to why the banking system awards its staff so heavily and frequently. Ed Miliband, the U.K.’s head of the Labour party, says that the bonus system in banking is a hangover from the days of partnerships. The banks distributed gains because there were no shareholders, but that annual disbursement of cash to partners has continued into the days of shareholder-owned banks.

Although there have been cuts in bonuses and caps on payments, Miliband says that the system has failed because it has enriched individual bankers but weakened the banking sector as a whole. The risk he says that the banks have encouraged has “crossed the line into sheer recklessness.”

Sir Phillip Hampton, the chairman of RBS, who recently turned down a 2.2 million dollar bonus, says that the bonus and payment system needs to be corrected. Not because it is a society or fairness issue, but because it is a straightforward business issue.

As for the ones who disagree with the falling payments, Morgan Stanley’s chairman and CEO tells that they need a reality check. In conclusion he gives them a three –point life plan: “Your naïve, read the newspaper, number one. Number two: If you put your compensation in a one-year context to define you overall level of happiness, you have a problem, which is much bigger than the job. And number three: if you’re really unhappy, just leave. I mean; life is too short.”

This post was originally published on Smartplanet.com


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