Are Big Fat Banker Bonuses About to Vanish?
Top executives at the world’s largest banks (NYSE:KBE) continue to take home 96% of their pay in the form of bonuses despite stricter regulations. The Financial Stability Board’s report card found that while large banks such as Bank of America (NYSE:BAC), Credit Suisse (NYSE:CS), Goldman Sachs (NYSE:GS), and Barclays (NYSE:BCS) are all mostly compliant with the new regulations, it also revealed that bank executives are still receiving bonuses rather than salary as their major form of compensation.
The preference toward bonuses is markedly greater in the US and UK where bonuses account for between 78% and 96% of total employee compensation whereas bonuses are between 32% and 56% of compensation in Asia and Japan. The new regulations did not require that banks limit bonuses, however, “it is an idea that has gained traction among some regulators, particularly in Europe, who believe it would reduce bankers’ incentives to take excessive risk,” according to the Financial Times.
Banks (NYSE:KBE) who have begun increasing employee salaries to compensate for the impact of reforms that require bonuses to be paid out in shares and over the course of several years complain that the changes are driving up their fixed staff expense. Bankers say that forcing them to adhere to specific bonus and salary ratios would limit their flexibility regarding expenditures and make adding additional jobs more costly.
Investing Insights: Will Bank Profits Disappoint Investors?