4 - The Post-GFC Practice of Bankers’ Remuneration in the UK

Summary

This chapter investigates the practice of bankers’ remuneration in the UK after the GFC and analyses the effectiveness of the regulatory initiatives. To track the changes, the investigation is also based on the UK ‘Big Four’ banks. It is found that the focus of performance-based remuneration has shifted from short-term incentives to long-term incentives. Complying with deferral, clawback and malus, the period of performance assessment has been significantly extended. Banks have also adopted risk-adjusted and stability-oriented indicators to link bankers’ remuneration to the sustainability and risk management of banks. However, to circumvent bankers’ bonus cap, banks have introduced role-based pay – a new form of fixed remuneration. Role-based pay is counterproductive, as it may reduce pay-performance sensitivity while encouraging bankers to take excessive risks. This chapter also argues that bankers’ bonus cap is conflicted with other initiatives, the implementation of which relies on performance-based remuneration constituting a significant portion of the total remuneration.