First came deferred bonuses. Then came mandatory deferred bonuses. Then came clawbacks. Then came deferred bonuses paid in CoCos (if you're at Credit Suisse). Then came the EU's bonus cap. Then came proposals to clawback bonuses in London for up to seven years. And now? Now, bankers in London are faced with receiving all or part of their salary in the form of a performance bond.
This latest step on the evolution of pay regulation in the banking sector was made by Mark Carney in a speech on the future of financial reform this morning. 'Standards may need to be developed to put non-bonus or fixed pay at risk. That could potentially be achieved through payment in instruments other than cash,' said Carney cryptically.
What would those 'instruments other than cash' be? None other than some sort ot performance bond as posited by Bill Dudley, chairman of the New York Federal Reserve last month.
Dudley's specific proposal was that U.S. banks set up 'performance bonds' and that those bonds pay coupons which constitute some of the pay of senior bankers and risk takers. If a bank were hit with large fines, the bond wouldn't pay out. It's not clear exactly what Carney has in mind in the U.K., but he describes Dudley's suggestion as an "elegant solution".
You can see the punitive appeal. If such bonds were in place now, banks' FX traders would not only be faced with having their bonuses clawed back, but would also forfeit the portion of their monthly salary which the bond generated.
However, performance bond pay will almost certainly be avoidable if you're junior or if you work for some of London's smaller banks, trading houses and M&A boutiques. Ranked as tiers two, three, or four by the Financial Conduct Authority, smaller banks tend to escape most of the edicts concerning finance pay. "The EU's bonus cap only applies to banks in tier one and tier two," says Sam Whitaker at law firm Shearman & Sterling. "My experience is that banks in tiers two and three have a lot more leeway when it comes to paying people."
Headhunters say candidates are already keen on working for banks like RBC, Jefferies and Unicredit for this very reason. If performance bonds become a reality, expect them to become keener still.