Page last updated at 12:38 GMT, Monday, 9 February 2009

Q&A: Bank bonuses

Royal Bank of Scotland's London office
RBS's plans for bosses' bonuses are in the spotlight

The issue of payment of bonuses to senior bank executives has been a significant talking point in recent months. Why is it an issue, and what has the government done about it?

Why has there been a controversy over bank bonuses?

There has been controversy over how big a bonus major UK banks should give their staff and key executives.

In the past, bonus payments have made up a substantial part of the income of bankers, and have risen from 5bn to 15bn in the past three years.

With many banks now facing huge losses, and their share prices having dropped sharply, critics question whether bankers deserve such pay-outs.

The controversy is even sharper over banks which have received the most public money, such as RBS and Lloyds TSB.

Reports that RBS, which is now majority-owned by the taxpayer, was preparing to pay 1bn in bonuses, sparked particular anger.

What has the government been doing about it?

Chancellor Alistair Darling has announced that the government is limiting bonuses paid out to staff by RBS.

Mr Darling said bonuses at RBS would be cut from the 2.5bn paid last year to 340m. There would be "no reward for people who have failed," he added.

And bonuses will no longer be paid in cash, but in shares.

The action comes after the government previously tried to use moral pressure to persuade the banks not to pay big bonuses and bankers not to accept them.

Mr Darling has also set up a long-term review of the banks's bonus culture.

Treasury minister Yvette Cooper has said any contractual or legal obligations on banks to pay bonuses at a time when they were making huge losses must be "challenged".

Meanwhile, the Treasury has ordered a probe into general UK bank management to be led by ex-City regulator Sir David Walker.

The independent investigation will also look at the pay and bonuses of top executives in the industry.

What does the opposition say?

The opposition parties have been consistent in saying that the government's actions have been too little and too late.

After Mr Darling's moves with regard to RBS, the Liberal Democrat economics spokesman Vince Cable said that "after weeks of political and public pressure, it is welcome if long-overdue news that RBS has at last come out with what seems to be an acceptable pay agreement".

He also urged that other banks be "brought into line" on pay.

Tory leader David Cameron has said that he has been warning about the dangers of excessive bonuses for many months.

On Sunday he said that bonuses at banks which have been bailed out by the Government should be capped at 2,000 and that high-paid traders and executives should get nothing.

What do other countries do?

In the US, President Barack Obama has announced that top executives in banks who receive further bail-out funds from the government's Troubled Asset Relief Program (TARP) will be subject to a salary cap of $500,000 (350,000).

However, the rule does not apply to the banks who have already received bail-out funds, and the bosses will still receive their stock options.

In France, President Nicolas Sarkozy has announced that there would be no bonuses in 2009 at banks that had received state aid.

He also said he would consider a cap on salaries for top managers of companies that received public funds, and said that the bonuses paid to traders who speculate also had to be curbed.

Germany also plans to ban bonuses and has set a 500,000 euro limit on executive pay at rescued banks.

Salary caps have been discussed in Russia , and the Australian prime minister has called for an end to bankers' "unrestrained greed.

In Switzerland, the government has proposed curbs on banking bonuses but no formal agreement has been reached. Switzerland's largest bank, UBS, has cut its bonus pool by 80%.



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