After the Black Horse bolted

A school friend who went on to become a star of the UK banking world once fretted to me that capping bankers' bonuses would simply mean losing out on the global talent pool. "They'll just up sticks and move elsewhere," he said, sitting in his multimillion-pound home in North London. The staff of his bank, he might have imagined, but didn't, don't have that option.

One of the underlying strands of the new "science" of Brexitology studied by lonely anthropological psephologists (no, me neither), was that the "small people," including the banking staff you and I actually meet when (if) we enter an actual bank, believe that the world as it is is a bit unfair.

Mustn't grumble, Keep Calm and Carry On and all that, but ... Now, whether one then blames something, someone, some people, or some peoples, is another issue. But many bankers in the UK, apparently fearing a Jeremy Corbyn-led Labour government more than a massively damaging Brexit, seem to have clung to a political strategy that promised these small people some redress, while not really explaining what or how, and also while promising the "big people" (including the banks) that things would go on as normal, or would move even into a less regulated, lower-tax space.

This small people-big people strategy won the war. It remains to be seen if it will be able to win the peace, although some wheels are turning. One case in point is cuts in banking chiefs' pensions.

Bankers reorbit

Santander said in December it will cut the pension allowance of its UK CEO Nathan Bostock by 436,000 pounds (€500,000, $557,000) over the next two years. Bostock will get a cash pension payout equal to 35% of his 1.7-million pound salary. Bank employees get 12.5%. 

HSBC and Royal Bank of Scotland have also reduced their CEOs' allowances, while Lloyds and Barclays are preparing to announce cuts as part of new remuneration policies, which will be voted on at their next annual meetings.

Lloyds earlier this year promised to cut the CEO's pension payments from 46% to 33% of his salary and cap a part of his pension linked to his final salary. The workforce of 65,000 receive 13% of their salaries from their employer as pension payments. Horta-Osorio's 419,000-pound pension package would be cut to about 190,000 pounds if shareholders agree. The bank's COO and CFO also got cash worth 25% of their salaries in pension payments. Horta-Osorio defended his pay package, saying it was lower than offered to rivals at banks like HSBC. The bank now says it plans to harmonize contributions at 15%, at a reported cost of 20 million pounds.

Barclays said in November it planned to cut CEO Jes Staley's pension allowance by 200,000 pounds, while Standard Chartered has done the same to Bill Winters' pension allowance. Staley's total remuneration for the year was 3.4 million pounds. His pension payments were equivalent to 17% of his total fixed salary in 2018, and under the proposals would fall to about the same level as the 10% paid to other Barclays staff. In 2018, Barclays reportedly paid Staley 3.36 million pounds in total, 96 times more than the median Barclays employee.

Other banks such as Royal Bank of Scotland Group and HSBC Holdings have promised to set pensions paid to CEOs at 10% base salary, to equalize with those paid to their workforces.  

But, it was revealed in late November, Virgin Money CEO David Duffy would receive a larger pension payment than the bosses at some of his much larger rivals in 2020, after the company resisted shareholder pressure to cut his pay.

Too little too late?

This all follows reforms to the UK governance code in 2018, which said bosses' pension contributions should be in line with the rest of the workforce.

Between 2017 and 2018, the value of the median contribution for new executive hires in the FTSE 100 dropped from 25% to 15%, according to Deloitte data. The average amount remained at 25%. HSBC executives went from 30% to 10%. 

"It's a start, but these cuts do not really go far enough. There's no real reason why CEO pension payments shouldn't be completely in line with other staff," Peter Parry, policy director at investor group ShareSoc told Reuters. "There is always a worry that when companies rein in pay in one area, they compensate for it in another area. The sad thing is that executive pay is now out of control," he said.

The Investment Association has been pushing companies to bring executive pension pay below 25% of salaries. It set a two-year deadline for companies to comply with the UK corporate governance code and bring executive salaries in line with the rest of the workforce.

"The changes represent a progressive step in the right direction by Lloyds Banking Group and the union can only hope that it is the first of many such measures the employer will take when it comes to supporting employees and their pensions," Rob MacGregor, a national officer for the Unite trade union, said. Don't bank on it.