Why the bankers’ bonus debate is not going away

A bouquet to Alison Kennedy, ‘governance and stewardship director’ at the Edinburgh-based pensions provider Standard Life, for leading the rebellion of Barclays shareholders against the bank’s decision to pay increased bonuses of £2.4 billion, far outstripping dividends to shareholders and despite a fall in profits. At last week’s AGM, 34 per cent of shareholders refused to endorse the board’s remuneration report after Kennedy declared herself ‘unconvinced’ that the bonus pot was ‘in the best interests of shareholders’ and warned of ‘negative repercussions on the bank’s reputation’. As if to prove the latter point, Barclays chairman Sir David Walker responded not by apologising but by expressing ‘irritation’ that Kennedy had spoken up in public rather than in earlier private consultations.

Can it be that such consultations have proved utterly unsatisfactory for concerned institutions? ‘Our patience was exhausted,’ added Kennedy’s colleague David Cumming. The objectors, who in Barclays’ case also included F&C Investments and the Local Authority Pension Fund, are still in the minority among financial professionals. But this is a debate that will not go away — and has been given impetus by the political decision, allegedly driven by Lib Dem pressure prevailing over George Osborne’s instinct, not to let RBS exceed the EU bonus cap of 100 per cent of base salaries.

Bank directors remain terrified of losing the talent below them if they cannot offer the ‘going rate’ they themselves are long accustomed to receiving. They have the ear of Osborne and others who do not want tax revenues from the financial sector to dwindle, and who dislike EU interference in the City. But a growing body of opinion regards the bankers’ going rate not only as grotesquely out of kilter with shareholder returns, but also inherently dangerous in the risky behaviour it continues to provoke despite the lessons of the recent crisis.