Bankers’ pay needs to be curbed further to reflect the risk of a bank failure many years after a bonus has been awarded, the Bank of England (BoE) said before the annual bonus season begins next month.
The European Union has already introduced curbs on bankers’ bonuses after huge payouts were criticized for helping to create the climate that led to the financial crisis in 2008. Bank shareholders, too, expressed dismay at large bonuses for bank employees despite poor returns.
Measures taken so far include the requirement for a portion of bonuses to be paid in shares over several years, but the BoE’s Financial Policy Committee (FPC) believes that these do not go far enough.
Chunks of a bonus are typically deferred for only three years. The FPC, which takes over British bank regulation next year, said that this is not sufficient to deter bankers from taking risky decisions that can have an adverse impact many years later.