Shareholder power bodes very badly for bonuses

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Please sir, give us another 12bn. Only if you promise to pay your employees a (relative) pittance.

As the new cash cow for investment banks, shareholders look set to become increasingly crotchety. And chances are they'll take a swipe at bonuses.

Goldman's shareholders already tried to take a swing last month, when they requested a 'say on pay' at the bank's annual meeting, only to be defeated and informed by Blankfein that they were 'less sophisticated' than the bank's board when it came to pay issues.

"The mix of shareholders in financial services stocks has become more activist," says Nick Studer, a consultant at Mercer Oliver Wyman. "It often only takes an activist shareholder to take a stance and all the others will line up behind it."

So far, Studer says we've only had 'rumblings' of discontent over the bonus system, but he adds that this could be about to change: "It's become apparent again that shareholders don't get compensated for the capital they put in and the risk they take - the upside goes to the talent, the downside goes to the shareholders."

Bonuses are in the firing line. Yesterday's confessional report from UBS admitted that bonuses had something to do with the bank's $37.4bn of writedowns.

The UBS bonus scheme "failed to distinguish between returns made by skill and those arising from low-cost finance," according to the Times.

Meanwhile, RBS' admission that it needs to raise its tier-one capital ratio to 8% suggests the landscape suddenly looks a lot bleaker than it did a few months ago.

"Historically, most banks have returned a strong ROI," says Simon Adamson at CreditSights, but we are now in a period of extraordinarily low returns for the foreseeable future."

With further cash calls seemingly inevitable, investors may see this as their chance to effect an irreversible change in the level and structure of bonuses. "This is a once-in-a-lifetime opportunity to rebase compensation," says Studer. "But banks aren't going to do it unless the investor community puts pressure on them."