The Bank of England will review its approach to pay after it identified the struggle to hire and retain staff as a potential risk to delivering effective monetary policy.
Governor Mervyn King, who asked in May to keep his pay frozen until he leaves in June 2013, thanked staff for putting up with a second year without pay increases while taking on extra work as the bank prepares to take on powers from the Financial Services Authority. The salary freeze ends next March.
“Bank staff have had to grapple with the challenges of our expanding responsibilities while enduring the second year of a pay freeze,” King said in the foreword to the bank’s annual report published yesterday in London. “We recognize that only by retaining and nurturing the most talented among bank staff and those staff transferring from the FSA can we hope to fulfill our responsibilities, new and old.”
King implemented the pay freeze for two years in March 2011, raising the prospect of staff defections elsewhere in London’s finance industry. To compensate, he pledged a range of measures for staff from limiting increases in canteen food prices to offering dry cleaning and accelerating restroom repairs.
Yesterday’s report identified “an inability to recruit and retain sufficiently experienced staff able to exercise the necessary critical judgment in providing analytical support to MPC and implementing monetary policy,” as one of the key risks facing the central bank.
Bank of England official Simon Wells, who led a team analyzing British economic data, resigned last year to join HSBC Holdings Plc as its chief U.K. economist. Andrew Benito, a specialist in consumer spending, left the central bank for Goldman Sachs Group Inc.
Among strategic priorities set for the bank is the goal to “ensure the bank has the right people and processes to carry out its core purposes -— in particular during this period of transition,” the report said. The bank will “implement talent management and rewarding career paths for staff, and conduct a strategic pay review.”
The central bank hired 403 new staff in the year ended February, 206 of whom were appointed on a permanent basis, almost double the number in the previous year, the report showed. The bank said it is “continuing to take steps to address its staffing requirements, in particular in respect of its new responsibilities.”
The Bank of England also identified risks for future policy from “the reputational consequences of inflated public expectations of what monetary policy can achieve in the face of a continuing adverse economic environment.”
In his foreword, King said that inflation “should fall back to around the target” of 2 percent next year, adding that the Monetary Policy Committee has had to strike a “delicate balance.”
King’s own salary remained at 305,368 ($478,679), less than the rate of between 375,000 pounds and 400,000 pounds recommended in a recent review, the report showed.