Newspaper article The Evening Standard (London, England)

Make Bankers Take a Stake in Their Business

Newspaper article The Evening Standard (London, England)

Make Bankers Take a Stake in Their Business

Article excerpt

Byline: Chris Blackhurst City Editor

ASSERTIONS by politicians that legislation should be introduced against high bank bonuses have been treated with ridicule in the business community, not least because the ministers and MPs are clearly jumping aboard a populist bandwagon and have so far failed to offer any specific proposals as to how their ambition should be achieved.

In the City, the prevailing mood is very much that a personal contract is an individual's castle. No government, the bankers predict, could make serious inroads into their earnings. And any move by the UK authorities against bonuses faces the possibility of driving away banks and bankers who do not need to be here and could ruin the City's hard-won position as a leading world financial centre.

There is a way, however, of treating bonuses that should at least merit further consideration, which is to restore "ownership" of the banks to the bankers themselves, to make them more responsible for their actions and therefore alleviate the wild risk-taking and short-termism that got them (and us) into such a mess.

Instead of awarding them wholly cash bonuses and, in the case of the senior executives, additional free share options, they should be required to commit a substantial proportion of their remuneration to buying shares in the bank at the prevailing market rate and keeping them for three years. I've tried to find a hole in this formula but for the life of me I can't.

It's true that a bank that liked to encourage its staff to take equity was Lehman and we all know what happened there. But Lehman was a one-off. It was run by a boss, Richard Fuld, who was increasingly divorced from reality. While the bank was sitting on enormous sub-prime positions, it's also the case that Fuld could have sold the bank but didn't. …

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