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Friday 08th of January 2010
October 21, 2009    

UK bank bonuses to rise despite bailouts

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by Kay Murchie

According to the Centre for Economics and Business Research (CEBR), City bankers will receive an estimated £6 billion in bonuses for this year, compared with £4 billion for 2008.

The estimate comes despite public outrage against bonuses after a year of multi-billion pound bailouts within the banking sector.

However, the CEBR did point out that this year’s payout is far below the £10.2 billion paid out in 2007 and future bonuses are unlikely to reach the levels of 2007 for several years.

According to CEBR economist, Benjamin Williamson, future bonus payouts will be £7.1 billion in 2011 and £7.5 billion the year after.

The G20 summit last month called for bonuses to be linked to long-term performance. The G20 nations agreed that bonus payments can be ‘clawed back’ if a bank makes a loss.

Bonuses will also be aligned with both performance and risk and disclosure requirements will be tougher.

Furthermore, it was agreed at the summit that bonuses should not be higher than a certain percentage of a bank’s revenue.

However, there was no agreement that bonuses should be capped. Many European nations, France in particular, had suggested the idea but it was dismissed as being “unenforceable”.

Commenting on the bonus payouts for 2009, Douglas McWilliams, CEBR’s chief executive, said: “Any attempt to deal with bonuses is likely to be either unsuccessful or very damaging, unless it addresses the issue of lack of competition which is at the heart of the sharp rise in profitability.”

“Banks’ profits have risen very sharply this year, reflecting a lack of competition in the market. It is not surprising that the increase in bonuses has matched these higher levels of profitability,” Mr McWilliams concluded.

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1 Comment »

  1. The argument for bonuses is that their payment attracts staff who improve the performance of the bank. The onus should therfore be on the directors to prove that the bonuses that they pay actually do improve the bank performance and long term security. If they can do that I have no problem with paying out.

    Of course, it is up to the shareholders (especially the Government) to ensure that the directors act in their best interests. Perhaps a few heads should roll.

    Comment by Martin Hogbin — October 24, 2009 @ 9:49 am

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