A debate at the High Pay Centre on Tues 10 Dec discussed the bonus cap and its implications.
At the High Pay Centre debate, Natalie Bennett, leader of the Green party, asked what kind of society we wanted to create where one in five workers earn less than the living wage, while 2,700 of UK bankers take home more than £1 million each year.
The EU bonus cap will hit the UK disproportionately as the number of bankers receiving more than €1 million in bonus is lower in other EU countries: 212 in Germany and 177 in France.
But Patrick Jenkins, banking editor of the Financial Times, pointed to the ways in which banks will get round the EU bonus cap. The bonus cap is aimed at limiting bonuses to one year’s pay or two year’s with shareholder approval.
“I’m convinced everyone will dodge it,” said Patrick. “They will simply increase base salary, but with a twist; it will be called an allowance.”
There has been a slight downward pressure on pay in the banking sector, but it is only down by 5% this year when profits are going up. Bankers in Europe say they will lose good people to competitors in the US and Asia if they can’t keep bonuses high.
“In my more gullible moments, I believe bankers when they say they want pay down to lower their cost base, but I’m more often cynical and think there’s a mass conspiracy to keep pay high,” Patrick said.
Helen Kersley from the New Economics Foundation says having the bank bonus cap is helpful as it draws a line in the sand. “What we get in rewards should relate to our value to society.”
“Society does have and should have an interest in what people are paid at the top and the bottom.”
Another question to consider is why are banks making such large profits in the first place?
This was picked up in the general discussion that there was not enough competition in the sector and bankers had captured their regulators. Natalie asked whether more competition was even possible. “Do we need all these products at all? We should ask about the value of every new financial product to society.”
Patrick said he believed the industry would probably lose people over time because of the bonus cap, but the question is whether we should care?
“We are in thrall to talent, why do we care?” asked Helen.
The conclusion to the debate was that the cap might have an effect at the margins, but what is really needed is a major shake-up of the structure of the banking industry.