Some of you may remember when Gordon Brown declared that the City’s “old excesses” were coming to an end. His Op-Ed in the Times this Spring was full of ambition, swagger and purpose. He made absolutely clear what he considered to be an unacceptable bonus, setting out some basic principles (see below).
Brown’s first principle: “there must be no reward for failure”.
In practice this means that anybody associated with a loss cannot receive a bonus. That’s not a special system designed to punish the bankers, but normal commonsense business practice.
Brown’s second principle: tie bonuses to long term performance
There should be no bonuses in the future unless they are based on long-term sustainable performance. The incentives available should be for long-term wealth-creating, not short-term deals.
Brown’s third principle: “the right of clawback”
Bonuses are not just about past performance but are designed to shape future performance. We have imposed claw-back clauses in RBS contracts to be used if performance is not sustained or employees leave before the consequences of their activities fully feed through.
Brown’s fourth and final principle:
the regulator has said that it will take into account a bank’s pay and bonus structures when supervising a bank
Well, it appears the FSA weren’t convinced. What the City regulator has come up with today is markedly different in tone. It is much more qualified, less prescriptive and generally more vague than Brown. Indeed, the draft code the FSA released in the Spring was much more in keeping with Brown’s stated approach. What made the FSA change their minds?