UK Chancellor Attacks City Bonuses

Alistair Darling, the UK’s Chancellor, criticized bonus payouts as too often not warranted by performance and called on boards to exercise more restraint. The attack came as a surprise, but the proximate cause seems to lavish pay for those in the City while their companies and the country as a whole is not doing all that well.

From the Telegraph:

The Chancellor today criticises the culture of rewarding failure in the City by giving bonuses to executives who appear to have done little to deserve them.

In an interview with The Daily Telegraph, Alistair Darling says that as the country heads into an economic downturn, company boards must be able to justify large bonuses. They should apply the “next-door neighbour test” of whether the payouts would be regarded as reasonable and responsible in a climate when millions of households are struggling with rising living costs, he says…

City bankers made an estimated £7 billion in bonuses last year. The bumper bonus round was one of the largest ever for investment bankers, despite the global economic turmoil and significant falls in the value of shares on stock markets around the world….

Mr Darling says: “There’s absolutely nothing wrong with giving somebody a reward but at the present time when people are going through these difficulties that’s something the boards have got to look at.

“They should behave responsibly. You have to ask – can you justify this? Can you say hand on heart this is the right thing to do? If you can’t justify it to your next-door neighbour you should think again.”

In the next few weeks, the major high street banks are expected to disclose details of multi-billion-pound profits for the past financial year and disclose details of the bonuses paid to their executives. Bob Diamond, the president of Barclays and head of its investment bank, is likely to top the pay table.

He is set to collect a bonus of at least £14.8 million this year despite the bank becoming one of the biggest British casualties of the credit crunch.

Mr Darling says: “I don’t have any problem with the chief executive of a bank or an oil company getting a reward for doing the right thing by the company, but you’ve got to be able to say to people, ‘Here’s someone who made a difference, the reward may be a lot but he’s justified it.’?”

Bankers insist that bonuses were more targeted this year, with the most successful receiving exceptional awards and under-performers getting “a clear message” that they are on borrowed time.

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