As Regulator Considers Options, Some Analysts Warn of Talent DrainAs the financial crisis unleashes a debate about bankers' compensation, the idea of limiting bonuses has taken an added twist in London: Will it hurt the U.K. capital's competitiveness as a place to do business?
Some regulatory consultants say the U.K.'s Financial Services Authority risks harming the country's financial-services industry if it restricts the way banks structure bonus packages.
Some warn that banks could leave London if bonus limits hurt their ability to attract talent. Any compensation limits would need to be global "because of the competitive power of the market," said Neville Bramwell, a partner at consultancy firm Deloitte & Touche LLP. "If people are subject to a salary cap at institution A, they will leave and join the institution that is not subject to that cap."
An actor in a bowler hat is silhouetted in front of the Bank of England during the filming of a television program.
Government officials turned up the heat on the issue at the Labour Party's annual conference this week by declaring that the culture of huge bank bonuses needs to be addressed. They blamed excessive bonuses, in part, for promoting the risky behavior that helped contribute to the global financial crisis. "Bonuses should encourage good long-term decisions, not short-term reckless ones," Treasury chief Alistair Darling said at the Labour Party conference in Manchester.
While the FSA has said it doesn't want to regulate pay, it does plan to look at whether compensation plans take into account long-term risks for financial firms.
"We are clear this is a global issue rather than a U.K. issue," said FSA spokeswoman Heidi Ashley. "We want to ensure that U.K. views on remuneration are properly represented in international discussions."
In the U.S., Congress is debating tying compensation limits to the $700 billion plan to rescue troubled financial firms. U.S. Treasury Secretary Henry Paulson has argued that pay limits shouldn't be part of this plan because they could discourage firms from participating.
The U.K. has been held up as a model for compensation watchdogs who note that many companies give shareholders the ability to vote on compensation plans for senior executives at annual meetings.
In Switzerland, shareholder activist Ethos, which directly and indirectly controls funds valued at about 1.4 billion Swiss francs ($1.3 billion), called Tuesday for large Swiss companies to give shareholders a say on executive compensation. Ethos said the current financial-market crisis necessitates increased transparency and a bigger say for shareholders.
"The obvious driver of the subprime crisis...is simply greed," said Stephane Gregoire, product management director at FRSGlobal, a regulatory consultancy. "A risk-based bonus policy must be driven by the regulators."
By: Adam Bradbery
Wall Street Journal; September 24, 2008
