Bank of England Governor Mervyn King froze his employees’ salaries to match the government’s policy on public-sector pay, raising the prospect of staff defections.
The London-based central bank will follow Chancellor of the Exchequer George Osborne’s policy to halt wage increases for the next two fiscal years, according to a Bank of England official. Osborne announced June 22 that pay won’t rise for public-sector employees earning more than 21,000 pounds ($33,000).
“King would have been keen to move in lockstep with what was announced,” Colin Ellis, a former Bank of England official who is now chief economist at the British Venture Capital Association, said in an interview. Still, “the bank started to lose some really good, high-level people in recent years, and clearly this is going to make life harder for them.”
Osborne unveiled his pay policy in an emergency budget to help cut Britain’s record peacetime deficit. The bank’s announcement on salaries coincides with a week of media focus on the governor, including WikiLeaks’s publication of a confidential U.S. diplomatic cable citing his concern on Osborne’s and Prime Minister David Cameron’s inexperience.
The Bank of England official said that as part of the public sector, the bank will freeze pay and that it was right that the bank respects public policy.
Unite, a labor union representing the bank’s staff, “is against the concept and reality of pay freezes,” Marie Scott, its regional officer for the central bank, said in an e-mail. “Our members at the Bank of England do not receive the ‘fat cat’ salaries associated with the City.”
Four heads of division at the Bank of England left in the past six months, according to a person familiar with the matter, who didn’t want to be identified because they aren’t authorized to speak to journalists. That’s a grade below King’s executive team. There are about two dozen of such officials, according to a graphic of the bank’s management structure on its website.
Highlighting the brain drain, Jens Larsen, a former head of the macro-financial analysis division, joined RBC Capital Markets as chief European economist in London in September after 12 years at the central bank. He had spent two years representing the U.K. on the executive board of the International Monetary Fund.
The Bank of England has in the past struggled to keep economists because of the higher pay available in the financial services industry. The bank’s directors said in the 2007 annual report that there had been “some concern” about rising resignations and vacancies in the monetary analysis and financial stability areas.
King refused a salary increase this year, according to the central bank’s annual report published in June. He took a 2.5 percent raise to 305,368 pounds including benefits on July 1, 2009. The governor already refused a revamped salary package when he was reappointed in 2008 which would have increased his basic pay to at least 375,000 pounds.
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