The EU bonus cap will do little to rein in pay or reduce the poor behaviour of investment bankers believes Martin Wheatley, the chief executive of the newly created Financial Conduct Authority.
Speaking at the London Business School Global Leadership Summit in the City today, Wheatley said that capping banker bonuses to 100% of salary (or 200% with shareholder approval) is not the way to change the culture of compensation within the financial sector.
“The last time we focused on bonuses, the average investment bank simply increase the base pay of its VP level by 100%, and the same will happen again,” he said. “Higher base gives you less ability for clawback and therefore removes the potential for both regulators and banks to punish poor performance and decision making.”
Wheatley follows the Prudential Regulation Authority (PRA) chief executive Andrew Bailey in criticising the bonus cap and was not alone in questioning its rationale.
Tim Breedon, a non-executive director and member of Barclays’ remuneration committee, said that while the “thinking behind the bonus cap was correct” it would take “some amount of creativity” to apply in practice for global banks who have to ensure consistency of pay across the organisation.
The bonus debate was framed within a soul-searching discussion among senior banking figures who frequently brought up the need for ethics, empathy and “social intelligence” among the bankers of the future.
Josef Ackermann, chairman of Zurich Insurance Group and former CEO of Deutsche Bank, said that bankers need to question what is “morally correct” rather than simply whether it contravenes current regulations and that those in the financial sector should “do what you would like to be done to you” rather than “fully exploiting the open space” between right and wrong.
The tarnished reputation of the banking sector is impacting its ability to attract the best and brightest, said Alessandro Profumo, chairman of Monte dei Paschi di Siena and former CEO of UniCredit.
“The value system of the banking sector is not attractive to the best people. We get clever people, but not the best. Empathy and social intelligence are skills that will be really important in the future,” he said.
Wheatley said that one of the reasons that people in the banking sector were now talking about the issues of ethics is reflective of how “badly skewed” the industries values were before the financial crisis when customers were seen simply as a “source of profits”.
London Business School went as far as inviting a Jesuit priest to teach ethics to its MBA students, said its professor of finance, Julian Franks. On the advice from a hedge fund manager, ethics will be integrated into all disciplines rather than viewed as a separate subject, he said.