Bonus Balls

A leaked document, published exclusively on, shows that the government has been secretly protecting bankers’ bonuses.

By George Monbiot. Published in the Guardian 25th January 2011.

It’s bonus season, the time of year when bankers show us what they really believe. As soon as they get their money, they spend much of it on land and houses. They know that these are safer investments than the assets in which they trade. If they trash the economy again, they at least will survive.

This year the frenzy will be almost as bad as ever. But it could have been worse. Here is the story, revealed by a leaked document, of how our government covertly tried – and failed – to kill tougher European rules on bankers’ bonuses, and how the Chancellor of the Exchequer appears to have misled parliament.

Before I explain what the government did, let me remind you of a few of the statements the Conservatives made about bonuses while in opposition. In February 2009, David Cameron announced that “where the taxpayer owns a large stake in a bank, we are saying that no employee should be paid a bonus of over £2,000″(1). Stephen Hester, chief executive of RBS, 84% owned by the taxpayer, is now said to be lining up a bonus of around £2.5m(2).

In October 2009, George Osborne announced that he was calling on the Treasury to stop retail banks “paying out profits in significant cash bonuses. Full stop.”(3) Bob Diamond, chief executive of Barclays, is due to make around £8m this year, half of which is likely to be cash(4).

In April 2010, a Tory policy paper observed: “news that bank bonuses this year are expected to total £7 billion shows that Gordon Brown’s claim to have ended the era of the big bonus was ridiculous.”(5) Bank bonuses in 2011 are expected to total £7 billion(6).

A fortnight ago, a Downing Street spokesman admitted that the government would, after all, make no attempt to limit the size of bonuses(7). This much we knew. But what the leaked document shows is that even as the government claimed to be seeking strong international rules to curb the bonus frenzy, it was secretly lobbying to prevent them from being passed. The document is, or should be, big news, but so far it has been covered in just one place: Tribune magazine, where the freelance reporter Ben Fox broke the story(8).

As David Cameron pointed out before he took office, the UK’s bonus culture “encouraged short-term risk-taking instead of rewarding the long-term interests of shareholders and the public.”(9) This risk-taking helped cause the financial crash. The EU wanted to prevent it from happening again, by reducing the incentive to chase short-term gains. It hoped to update the Capital Requirements Directive, to ensure that bankers could take only a small part of their bonus as an immediate cash payment(10). The rest of the bonus would be a mixture of cash and shares, held over for up to five years. If, during that time, the bank did worse than expected, some of the promised money would be clawed back(11).

This would force bankers to think about the future as well as the present. The European draft proposed that no more than 30% of smaller bonuses and no more than 20% of larger ones could be paid upfront in cash(12). The British government had other ideas.

The leaked document, which was passed to a socialist-group MEP, lays out the UK Treasury’s negotiating position(13). It reveals that “throughout the negotiation and implementation of the Directive, we have supported an interpretation that limits upfront cash to 40% of a total bonus”. The European parliament’s proposal – for a 20% limit – would, the UK claimed, “have a significant impact on the European financial services sector’s international competitiveness.” The Treasury, the document shows, also contested the plan to impose a minimum period for deferring the rest of the bonus payment. “Some may argue,” the leaked document conceded, “that we are supporting a position that is less onerous on bank pay than other European legislators.”(14)

Under the heading “Line to take”, the document proposed that the government should claim that it has “led the way in implementing G20 principles and doesn’t believe that the EU should go further than what was agreed by the G20.” It argued that “the only consistent option” is to drop the “minimum retention conditions.”(15) I’m publishing the leaked document in full on my website.

In December the UK proposals were defeated, and the tougher rules on bankers’ bonuses were adopted by the European Parliament(16). But here’s the kicker. On January 11th 2011, the Chancellor of the Exchequer, George Osborne, made the following statement to the House of Commons. “… on 1 January this year we introduced the most stringent code of practice of any financial centre in the world. For the first time, there will be a strict limit on the amount of bonus payable in up-front cash. Also for the first time, there will be a requirement that 50% of bonuses be paid in shares or other non-cash instruments, which bank employees will not be allowed to sell on for an appropriate period.”(17)

In other words, Osborne is claiming credit for the very policies his government tried to squash. He is also wrong to claim that the UK’s is the most stringent code of practice. It is in fact the minimum possible implementation of the EU directive (for example, under the UK interpretation, bonuses aren’t classified as “large” until they reach £500,000). The rules are mandatory, and they came into force in all member states on January 1st. It seems to me that Osborne misled parliament.

As for the claim in the leaked document that the tougher rules would damage the sector’s competitiveness, such restraints will do the opposite, as Cameron and Osborne both acknowledged while in opposition(18,19,20,21). They defend the banks against their bosses’ greed.

The Treasury made the following statement when I asked if it had tried to water down the directive. “This accusation is wrong. The updated Code is tougher than last year’s … for the biggest risk-taking employees, the amount they can take up-front in cash has been halved from 40% to 20%.”(22) Yes, but what it failed to add is that this happened despite its best efforts. The deception continues.

The Prime Minister and the Chancellor of the Exchequer have been playing a double game. They claimed they wanted to tame the banks. In reality, they were protecting them. They never meant to address the economic polarisation of this country, or to check the incentives which caused the last crash. Their intention was always to pamper the rich and to make the poor pay for their follies. As the leaked document shows, the Conservatives are ready to risk the whole economy to help the filthy rich get richer.




3. George Osborne, 26th October 2009. Speech: The British economy needs confidence and credit.

4. Cash (see below) will now make up a maximum of 50% of a bonus. Those who can get cash are likely to take it.

5. Conservative Party, April 2010. Change for the Better in Financial Services.




9. David Cameron, 15th December 2008. Speech: A day of reckoning.


11. Committee of European Banking Supervisors, 10th December 2010. Guidelines on Remuneration
Policies and Practices.


13. UK Treasury, no date given. CRD3 Briefing: CEBS Guidance on Remuneration Provisions in the Capital Requirements Directive. The full text is at:

14. As above.

15. As above.

16. Committee of European Banking Supervisors, 10th December 2010, as above.


18. David Cameron, 15th December 2008, as above: “Many bonuses were also calculated using return on equity rather than return on overall assets. This created a massive incentive to borrow – by financing with debt rather than equity bankers could increase their returns on a small equity base and therefore increase their bonus.”

19. George Osborne, 26th October 2009, as above. “But instead of using these profits to lend more and get credit flowing again, the banks are threatening to pay out billions in cash bonuses instead. If this happens it will make the credit crunch worse.”

20. See also: The Conservative Party, July 2009. From Crisis To Confidence – Plan For Sound Banking:
“It has been clear for some time that irresponsible remuneration practices contributed to the financial crisis by encouraging individuals to pursue high risk, short-term profits.”

21. And: The Conservative Party, September 2008. Reconstruction – Plan for a strong economy: “It is clear that employees who are incentivised with massive bonuses to focus on short-term gain are likely to take more risks than those whose pay is linked to the company’s longterm success through share options.”

22. HM Treasury, 24th January 2011. By email. Here’s the full text of their statement: “Here’s our line on the claim that we tried to water down the capital requirements directive: This accusation is wrong. The updated Code is tougher than last year’s. Around 250 firms are now subject to the toughest rules, compared to 25 previously. What’s more, for the biggest risk-taking employees, the amount they can take up-front in cash has been halved from 40% to 20%.”