By Claire West
As the Tories dump Vince Cable's plan to expose bankers bonuses this year, one leading academic says that banks will always find a way to pay big money to employees, regardless of any legislation designed to curb stratospheric pay-packets.
Professor Phil Molyneux, Head of Bangor University Business School says, "I don't think the plan would have worked in any case. Banks are expert in circumventing regulations. They have strong incentives to devise legal schemes that get around rules so that they can reward their top employees as they see fit. In the past it was payments to executive offshore companies, then performance bonuses bundled with stock options, and nowadays it's big salaries and enormous guaranteed bonuses. No matter what restrictions are imposed banks will find ways of navigating around them."
And in a week which has also seen Mayor Boris Johnson call for bankers to donate a 'proportion of what they earn to good causes' over the festive period, Professor Molyneux says that the 'morality angle' may be the only way to go, "Unfortunately, guilt may be the best tactic in this instance, but it may be too little, too late."
Banks such as HSBC and Barclays have already agreed to increase bankers' salaries as a proportion of total pay in a bid to pre-empt the regulators and according to the Professor, who has consulted to the likes of The World Bank and Credit Suisse, this move alone makes it very difficult for anyone to regulate them.
He adds that, while there is already much talk of relocating high bonus businesses to places like Dubai, Singapore and other tax havens, this is only one obvious risk of outlawing high level bonuses in the UK.
"The recent CEBS proposals are, in effect, an opening gambit aimed at prompting a sensible compromise on bankers pay in the EU. And any agreement on limiting bankers' bonuses needs to be agreed at international scale in any case. As it stands, it looks like Europe will be the first movers and as a result talent will simply move to the US, Japanese and Asian banks. The resulting talent drain would kill any comparative advantage that UK banks have built up over the years."