Headline grabbing on bankers’ bonuses

Another week another story about bankers’ bonuses. When I heard the headline this morning about how the government plans to give the FSA powers to strip bankers of their bonuses I wondered how the hell it was going to work. Surely, I thought, that would be forcing employers to renege on existing employment contracts.

Apparently, these powers will only apply to employment contracts formed after the legislation comes into force. So if you change jobs after the new law comes into force, the government can step in and stop you getting a huge bonus. If you were  in your job before the effective date, though, you will still be free to trouser as much as you can wring out of your employer.

This might have some interesting effects on the labour market. Will there be a rush to move to new jobs before the deadline? Will people be less willing to move afterwards due to the risk of working under one of the new government regulated contracts? This law could help ease the banks’ perennial retention headaches by simply making it less attractive for people to move jobs.

Whatever happens, though, if this legislation is passed there will be a rush to secure high salaries and, more importantly, high guaranteed bonuses before the deadline. It could lead to a frenzy of bargaining and job moves in the months before it becomes law.

Given that the Labour Party will probably lose the next election, it is unlikely that this legislation will be passed, unless the government rushes it through. Which is a pity, because I’d be fascinated to see what the effects would be.

The Tories are accusing the  government of chasing headlines, which is surely a case of the pot calling the kettle.  Tory Treasury spokesman Philip Hammond claimed that the FSA already has the power to regulate bonuses and asked why it hadn’t used them to stop the payment of huge bonuses this Christmas. Now there’s headline grabbing for you. With his background in business, Mr Hammond knows full well that it would take expansive and draconian legislation to mess about with existing employment contracts and that the FSA can’t stop the non-nationalised and foreign-owned banks from paying out whatever they like. There will be a bonus bonanza this Christmas and there is very little the government can do about it.

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One Response to Headline grabbing on bankers’ bonuses

  1. In the U.S., taking back improperly earned salary and bonuses is called a ‘clawback.’ It’s a good thing and could be used by governments on both sides of the Pond to bring financiers to heel.

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