Bonus day occurred this week for many financial institutions around the globe, and shrinking compensation due to the poor economy has left many employees feeling nauseous. But UK Prime Minister David Cameron, setting his sights specifically on state-run banks Royal Bank of Scotland and Lloyds, criticized the bonus system during a speech on moral capitalism on Thursday.
I can tell you something: if there is a bonus, it will be a lot less than it was last year, Cameron said during his economic address in London.
The processes that are set out should be followed in the proper way, he added, referring to regulations that put a limit on the banks' bonuses of 2,000 pounds ($3,100) cash.
Cameron took aim at RBS chief executive Stephen Hester, who made 1.2 million pounds ($1.8 million) in salary this year and collected a bonus of comparable size in 2010. It was reported earlier in the day that Hester was slated to receive another million-plus pound bonus this year, but the bank has denied the claim.
Because RBS and Lloyds were bailed out by the government, there have been calls for stricter bonus regulations and for the government to be the final judge of executive compensation. While the idea of revamping the bonus system has received much support from the public, many in the financial services industry don't want the government involved.
Sir George Mathewson, the former chairman of RBS, said on the BBC Thursday morning: As far as the government saying something, it should be the board of the company who decides. And it should not be decided arbitrarily by the government but it should go the usual procedures through the board of the company.
He added: Bonuses should represent exceptional performance... I am, in general, not in favour of [in] investment banking culture, of reward by bonuses unless real performance, and I think share price is one measure of performance, justifies it.
In his speech on Thursday, Cameron said the the global financial crisis showed a need for greater corporate responsibility. While championing the free market, Cameron also supported the idea of bank and tax structure reform in an effort to promote “social responsibility.
“I believe that open markets and free enterprise are the best imaginable force for improving human wealth and happiness, Cameron said.
They are the engine of progress, generating the enterprise and innovation that lifts people out of poverty and gives people opportunity. And I would go further: where they work properly, open markets and free enterprise can actually promote morality.”