The bonuses of bankers will be further deregulated to increase the competitiveness of London on the international stage.
The Bank of England’s Prudential Regulation Authority revealed on 17th October that they would be seeking to reduce the time period for deferring bonuses to the highest paid bankers in firms from eight to five years.
Deferring bonuses allows them to be cancelled in the event that trades, deals, or other initiatives undertaken by employees later go wrong. Senior managers in banks who earn more than PS500,000, or whose variable compensation exceeds one-third of their total remuneration have their bonuses deferred up to eight years. Other top staff, and those deemed “material risk takers”, have their awards deferred by five or four year.
The PRA and Financial Conduct Authority lifted a cap on bankers’ payouts in the UK that was inherited from EU as part of a separate post Brexit effort to boost British Banks’ ability to compete against their overseas competitors.
Sam Woods told the City leaders in the Mansion House at the Mansion House, “the UK is now an outlier when it comes to the length of time we deferral, and this could be detrimental for our competitiveness”. He stated that there were indications that the deferral period was longer than necessary for safe and sound practices.
He suggested a deferral of five years for all senior management, down from eight for some at the moment, and four for others.
Woods said that reducing deferrals of bonus payments would “support our growth and make us more competitive without compromising financial stability”.
Adrian Crawford, employment partner with Kingsley Napley welcomed the change, calling the previous bonus rules an example of “banker bashing”. He said that the proposal for bankers’ bonuses to vest in the first year rather than the third, and be paid out over five years instead of eight, was clearly intended to make London more appealing to bankers and the City, as well as to bring some jobs back after Brexit.
The reversal of these bonuses rules will not be seen as a more risky place to do business in London. These rules have been viewed by many as political bashing against bankers rather than a genuine risk management. It will, however, make London a more attractive place for high-flying, internationally mobile bankers.
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