The Lloyds Banking Group bankers forced to pay back some of their bonus payments are unlikely to be the last bankers made to repay remuneration, as claw-backs become increasingly popular.
While claw-backs are usually employed in particularly extreme cases – in the case of Lloyds, it is punishing directors who were in charge during the mis-selling of payment protection insurance (PPI) scandal – a growing number of voices are calling for it to be used in case of underperformance.
Swiss bank UBS is taking back 50 per cent of share-based bonuses over 2 million Swiss Francs ($2.2 million) paid to investment bankers in 2011, after a profit plunge for 2012.
British consumer group Which? has called for other major UK banks, including state-backed Royal Bank of Scotland [RBS], Barclays [BARC], HSBC [HSBA], and Spanish-owned Santander, to take back bonuses from those in charge during the PPI scandal.
“If you are paid a bonus for a certain degree of performance, and subsequently it turns out to be worse, clearly it should be clawed back,” James Barty, Senior Advisor on Financial Policy, Policy Exchange, a think-tank which is close to the UK’s Conservative Party, told CNBC.com.
“The move to claw back has only recently come in, but it ought to happen more frequently. If people believe it’s a real and present threat it will change behaviour.”
This is all part of a public backlash against bonuses, backed by politicians around Europe, in the wake of the financial crisis.
“This all comes back to rewards for failure. If people get rewarded for being successful, other people don’t get irritated. It’s when they are rewarded for failure,” Barty said.
“A lot of people have claw-back but it’s only in extremis. We should also have it for bad performance.”
He advocates paying bonuses into an escrow account, which doesn’t pay out until a certain date, to ensure that traders and investment bankers are thinking about long-term performance.
Prominent firms are increasingly building claw-back clauses into employees’ contracts, according to Gillian Chapman, partner specializing in employee incentives at Linklaters.
She warned that some employees may think retrospective claw-backs are unfair, and choose to move elsewhere.