Getting a bonus at Royal Bank of Scotland plc and Lloyds Banking Group plc is going to get a lot tougher these days. How tough? The U.K.'s Treasury said that bonuses at the country's largest bank, which was effectively nationalized, will be reduced by more than 90% to £175 million ($250 million). Even further, directors and workers associated with losses in 2008 will receive no bonuses. Meanwhile, Lloyds, the other bank that the government also owns a controlling stake in, will likely follow a similar bonus policy.
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"We have tried, wherever possible, to focus the worst impact of the changes on our more senior staff and in particular those in the concentrated areas of our business responsible for the major losses recorded in 2008," said RBS chairman Philip Hampton in a separate statement Tuesday.
Meanwhile, across the Atlantic, bankers receiving government capital via the U.S. Treasury's Troubled Asset Relief Program are also likely to see similar reductions as Congress buried compensation restrictions inside the $787 billion stimulus package.
The question remains to be seen how these policies will reshape the banking industry. Will the current set of bankers and executives at these firms flock to another industry or different country to ply their trade? Perhaps Greenwich, Conn., Silicon Valley or the Middle East may be a more lucrative alternative to make a buck. In fact, there are already anecdotal signs that bankers are leaving U.S. firms for foreign ones.
One thing is for certain, capitalism is suffering from a big black eye right now and some of the medicine governments are prescribing will be hard to swallow, especially for the financial executives, who are used to big bonuses and fat expense accounts. - Gerald Magpily
See Bloomberg article
