Within the financial sector, fears are increasingly being voiced that public and media pressure will lead to problems for the banking industry. Public outcry over bonuses, fed by politicians searching for easy sound bites, recently led to RBS CEO, Stephen Hester declining his £930,000 annual bonus. Pressure on bonus pay outs has grown across Europe with the EU advocating a cap on bonuses to a maximum of twice annual salary and the on ‘golden hello’ payments.
The current pressure on bonuses is however giving rise to severe misgivings within the banking industry and fears that bonus restrictions will ultimately damage competitiveness and lead to recruitment problems. Many within the industry believe that bonus restrictions will inevitably lead to significant salary increases as institutions compete for the best staff. This may lead to some banking operations becoming uneconomical due to significantly increased basic salaries. While big bonuses grab headlines, they are linked directly to performance and therefore justified on results, whereas large salaries will have to be paid regardless of performance.
Both Prime Minister David Cameron and leader of the opposition Ed Miliband have expressed concerns about banking bonuses, but recently industry figures have started to urge caution on interfering in the market. Labour peer and entrepreneur Lord Sugar has warned that ‘bank bashing’ by politicians could further depress the industry, which is struggling for stability following the recent years of crisis within the financial sector. He warned that restrictions on the banking industry could lead to talented personnel leaving the sector.