by René Lavanchy
GORDON BROWN and Chancellor Alistair Darling are expected to outline new restrictions on bankers’ executive pay and bonuses in the coming weeks, after the Government was denounced for not taking further action to curb financial rewards at banks bailed out by the taxpayer, Tribune has learned.
The Treasury announced this week that former banker Sir David Walker will chair a review of governance in the banking industry, including executive pay. But MPs and unions have asked why there has not been an immediate cap on pay imposed, as in the United States last week. And the GMB union attacked the choice of Sir David, whose review of the private equity industry they dismissed as toothless.
A Government source said this week: “I think there’s been some misunderstanding. The review is a long term issue.” Action would be taken in the medium term, and Mr Brown and Mr Darling would issue more “robust statements”, they added.
When the Treasury initially bailed out several banks in October 2008, it banned bonuses for board members. But ministers were apparently unaware of contracts promising to pay bonuses to lower-ranking executives.
RBS, soon to be 70 per cent Government owned, was reported recently to be preparing to pay out £1 billion in bonuses.
Labour MPs have this week signalled that a review will not be enough. One told Tribune: “It’s a very toxic issue. Every MP is aware that the public are really angry. I’ve been approached by two businesses a week with no credit. They’re really livid because the banks are taking all these bonuses.”
John Mann, MP for Bassetlaw and a member of the Treasury Select Committee, said: “I could do a review within two minutes. There’s no case to be made. Banks have been tremendously overpaid. For the next two years at least, there ought to be strict limits on bankers’ pay.” The American approach was “very sensible and obvious” and should be copied, he added.
The US Treasury has announced that banks who continue to receive “exceptional assistance” cannot pay their executives over $500,000 (£340,000) a year, and all bonuses must be in shares that cannot be sold until the Government is repaid.
Sir David Walker oversaw a review of the private equity industry in 2007, which sought to address fears that the sector – which buys up companies, typically by transferring large amounts of debt onto their books – was unaccountable and prone to asset-stripping companies. The review concluded that the sector did not need regulation, and that a voluntary code backed up by public scrutiny would be enough.
GMB legal officer Maria Ludkin said: “It’s an extremely disappointing appointment. It illustrates that the Government is not taking seriously public concerns about executive pay. Our experience of David Walker is that he is a light touch regulator. The private equity industry were delighted when he was appointed to review their sector and he rewarded them.”
TUC general secretary Brendan Barber commented: “We do not need a review of bonuses, but a root and branch reform of the whole banking sector and the employment of people who do a fair day’s work for a fair day’s pay, not expect a bonus to get out of bed in the morning.”
