Billion-pound bonus plans spark new fears

Barclays bonus row

The question over whether so-called super-banks should be broken up has long been at the centre of policy-makers' debate. And yesterday, the news of record profits at Barclays - which this week will pay out bonuses of more than GBP£2.3 billion - has reignited the outrage of investors.

Barclays, however, isn't alone in being scrutinised. Royal Bank of Scotland (RBS), which is more than 70 percent owned by the British taxpayer, is also coming under heavy criticism as it finalises its GBP£1.3 billion bonus pool.

For Barclays though, it is the expected record profit of GBP£11.2 billion that has led to such a huge bonus fund, with payouts expected to go to 23,000 Barclays Capital (BarCap) investment bankers.

Volcker rule

The move has since caused UK Political party, the Liberal Democrats to call for big banks to be broken up. In fact, according to the Lib Dems, the government needs to match the so-called Volcker rule that was unveiled by US President Brack Obama earlier this month. Under the ruling, banks are unable to use customer deposits to engage in risky activities, including things such as bet-taking on markets through activities like proprietary trading or hedge fund management.

Liberal Democrat Treasury spokeman Lord Oakeshott told UK newspaper The Guardian yesterday that his party believes, "Obama is dead right about breaking up the banks. [UK Prime Minister] Gordon Brown is now lagging behind the curve. All the government is offering is the laughable bonus tax."

Pressure cooker

Over at RBS, the issue is equally touchy. The taxpayer-majority owned institution has already been forced to pledge that it will not to pay cash bonuses to anyone earning more than GBP£39,000 and is likely to argue that its proposed GBP£1.3 billion bonus pool barely covers 25 percent of revenues.

As it stands, the ailing bank must have its bonus plan approved by UK Financial Investments, which controls the taxpayer stake in the bank, and will pay bonuses in shares, although some of these could be sold quickly to crystallise cash payments.

In addition, the pressure cooker seems to have been cranked up even more today, as reports that two of RBS's senior staff have quit, sparking fears the state-controlled bank could suffer a talent exodus as a result of the bonus crackdown.

According to reports today, while both exiting staff members had jobs to go to, their decision to leave has ultimately been blamed on the bonus rules that have been enforced at RBS.

And it is a genuine concern: last month, at a Treasury Select Committee meeting, RBS chief executive Stephen Hester, said: "The government's 84 percent stake in RBS is making it hard for the bank to attract talent.

"People are worried about working for RBS because of the problems it faces, such as the extra rules [it is subjected to]."

Matthew Buttell

Matt Buttell graduated from Bath Spa University in 2006. Since then he has written for several publications, before moving to the web. He now writes solely for the internet, continuing to cover key business issues while managing his own personal blog.

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