So, the game is on.
At least, if it's up to the Dutch National Bank's president, Nout Wellink, who flexed his muscles today.
This morning he informed a committee of Congress - on personal title - that all topbankers are expected to 'just say no' to their bonuses over 2009; as long as the credit crunch continues, directors of financial institutions should not receive variable pay (as opposed to fixed pay). Not just directors of banks that were saved by the government during the crisis, no no no; the directors of all banks.
Sounds a bit like the Pay Czar phenomenon introduced some time ago in the US. Other recent developments in the US include an initiative by the American Federal Bank to start regulating salaries of bank employees well beyond board level. Some serious eyebrow raising has been going on since among academics on the other side of the Atlantic.
Anyway, Wellink also announced that possibly the same will apply to the second management echelon, depending on the outcome of research that is in process; no end in sight there yet. All directors can look forward to a 'value enhancing' talk with the gatekeeper of financial institutions. These talks basically carry the weight of informal but clear instructions.
'Ze moeten uiterst voorzichtig zijn met hun beloningen', waarschuwt Wellink, 'om de doodeenvoudige reden dat we midden in een crisis zitten. En daar zijn we voorlopig nog niet uit. (...) Als wij met mensen gaan praten, zullen we onze opvattingen opleggen, niet ergens in het midden uitkomen.' (FD)
So he's talking business here, which is illustrated by terms like 'pay in shares soon looks like a lottery' and 'moral breakdown'. This choice of words may have been caused by the outcome of an investigation by the Dutch National Bank, indicating that the banking directors' pay in the big shots region (say between € 1.5 and 2.5 million) mostly consisted of bonus payments. An outcome that apparently came as a shock.
Remarkably, this new modus operandi has far broader implications than the Dutch Banking Code 2009 that was only introduced some two weeks ago, and that merely stimulates the persons involved to act prudently and cautiously when entering the bonus area (no prohibition there); see section 6.4 on "Variable Renumeration". The straws in the wind seem to be taking a different angle, at least behind the Dutch dikes; although the committee meeting was sort of a stepping stone to the coming G20 meeting in Pittsburgh, that will no doubt be heavily dominated by the credit crunch and banking bonuses (there are also other important issues on the agenda you know), it seems doubtful whether sortlike measures will be taken elsewhere also after this weekend; the UK for example, not the smallest player on the block, doesn't seem all to eager to take the same route.
We'll see. For now, clouds do seem to be blocking the sun from where directors of Dutch financial institutions are standing. Downforce on the thumbscrews is increasing...
UPDATED
The G20 summit actually produced results as to the bonus discussion, although no agreement was reached on 'capping' bonuses (as introduced, for examle, in the Dutch Banking Code 2009). In sum:
- No more multi-year guaranteed bonuses, but a linkage to long-term corporate wealth creation.
- The financial position of the bank can have a negative impact on the bonuses: when the ship is sinking, the bonuses will not be unaffected.
- Supervisory directors can 'claw-back' unjustly paid-out bonuses.
Not too groundbreaking from a Dutch perspective, but still. (FD)
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