British Bankers Shouldn’t Celebrate the Bonus Cap's Demise
Banks will have more freedom to pay bonuses well in excess of base salaries. This could shift the power balance back to them from their employees.
Funny money.
Photographer: BOB STRONG/AFPThe defining characteristic of investment banking is that bankers take more than their fair share of the rewards made by the firm. The UK’s decision to remove the cap on banker bonuses will be seen by many as helping finance workers do just that. But if banks use their regained flexibility on pay responsibly, the opposite should be the case.
Bonus caps of twice base salary were introduced across the European Union for certain sectors in the wake of the financial crisis. Post-Brexit, the UK can decide for itself whether to continue the policy. The Bank of England’s decision to scrap it looks terrible and is a tough sell politically at a time when workers on average incomes are struggling with the higher cost of living. All the same, scrapping bonus caps is a lesser evil than keeping them — for a handful of reasons.