U.K. Chancellor of the Exchequer George Osborne urged banks to build up their financial defences rather than pay out big bonuses this year as the Treasury said it will explore ways to tackle “unacceptable” levels of pay.
The Treasury plans to consult on proposals to curb bonuses by extending current pay-disclosure requirements and giving shareholders a greater say over executive compensation.
“We need stronger banks not larger bonuses this winter,” Osborne told lawmakers in the House of Commons in London today.
The government is increasing pressure on institutions as they begin considering bonus awards over the coming months. Ministers are seeking to prevent a public backlash over top pay as living standards are eroded by inflation and a weak economy.
Deputy Prime Minister Nick Clegg said on Dec. 4 public-sector workers enduring pay curbs to help tackle the budget deficit should not feel they are doing “all the heavy lifting” and the government is prepared to legislate if necessary.
Thousands of government workers went on strike last week to protest against plans to curb their pensions and Osborne announced that state employees will see their pay increase by no more than 1 percent for two years after the current freeze ends in 2013.
The Treasury plans to extend the pay-disclosure agreement to the 15 largest banks operating in the U.K., including non-U.K. banks that operate in the country. Under their Project Merlin accord with the government earlier this year, the largest banks agreed to disclose earnings of their top eight executives.
“The banking system cannot reward employees for short-term performance while leaving investors exposed to long-term risk,” Treasury minister Mark Hoban said in a statement. “We want shareholders to hold banks to account for their bonus structure, which is why we’re taking action to make top-level pay more transparent. We want the most transparency for those with the greatest responsibility.”
The Bank of England’s Financial Policy Committee said last week that if banks’ earnings aren’t enough to build capital, they should limit payments of bonuses and dividends.