Bankers’ bonuses to be further deregulated

Bankers’ bonuses are to be further deregulated in a bid to boost the international competitiveness of the City.

The Bank of England’s Prudential Regulation Authority (PRA) revealed on 17 October that it would seek to reduce from eight years to five the length of time that bonuses awarded to the highest-paid bankers at firms must be deferred.

The purpose of the deferment is to allow cash and share bonuses to be cancelled if trades, deals or other initiatives handled by employees go wrong at a later date. It means that senior managers at banks whose total pay is more than £500,000 or whose variable pay exceeds a third of their overall remuneration, have their bonuses effectively deferred for up to eight years, while other top staff and so-called “material risk takers” have awards held back for five or four years.

Last year the PRA and Financial Conduct Authority removed a cap on bankers’ payouts that the UK had inherited from the EU in a separate post-Brexit effort to boost British banks’ ability to compete with their overseas rivals.

Sam Woods, chief executive of the PRA, told City leaders at the Mansion House that “the UK has become something of an outlier in terms of the length of deferral that we require, and that this may well be damaging for competitiveness”. He said there was evidence that the deferral periods were longer than they needed to be for safe and sound financial practices.

He proposed moving to a five-year deferral period for all senior managers, down from the eight years some are subject to at present, and to a four-year deferral for others.

Woods argued that reducing bonus deferrals would “support growth and make our regime more competitive without undermining financial stability”.

Adrian Crawford, employment partner at Kingsley Napley, welcomed the move, calling previous rules on bonuses an example of “banker bashing”. He said: “The proposals for bankers bonuses to start vesting in year one rather than year three, and to be paid over five years rather than eight, are clearly designed to make London more attractive to bankers and banks, and to bring back to the City some of the jobs lost after Brexit.

“Any move which is seen as lowering regulatory protection could be counter-productive but these rules on bonuses have always been seen by many as political banker bashing rather than genuine risk management so their reversal is unlikely to be viewed as making London a riskier place to do business. On the other hand, it will undoubtedly make it a more attractive location for internationally mobile, high-flying bankers.”

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