The government are concerned that a cap on bonuses would affect the position of the city of London as a financial centre competing for top talent globally. But this is why action must be taken at an international level and the EU move is a step in that direction. Precisely what level the cap should have and what conditions should be subject to debate and decision.
There is always the argument that if you seek to restrict greed, and it is greed, then the wealthy will find other ways to satisfy their avarice. We mustn't increase taxes, else they will move their money elsewhere etc. We cannot go on allowing these greedy people to blackmail us in this way. So, yes there are valid arguments not to cap bonuses, but the question is whether the benefits outweigh them. I believe in a time of austerity they do.
Any bonuses incorporated contractually should be dependent on long term results and not simply short term gains that might be wiped out over time. The current bankers bonuses are obscene. Through incompetence and greed, the banks brought the financial system to its knees. Failure to apply due diligence has now led to an austerity programme from which the rich bankers have ring-fenced themselves. This cannot be justifiable. If ordinary people are having to make adjustments, then so too must those in the financial sector.
Since the bailout, losses at RBS have now reached £34bn. Yet, despite this loss, the bank has paid out £679m in bonuses, some £287m of which is to its investment bankers. Of course RBS needs to attract good people, but it also has a duty to the public and consumers.
Sensible rules regarding salaries and bonuses are good for shareholders, consumers and taxpayers. We are all stakeholders in one way or other in the banks. There needs to be transparency and accountability in setting bonuses. It is said that if bonuses are capped, then salaries will increase and flexibility will be lost. In bad times it would be difficult to reduce salaries whilst it is possible to reduce bonuses. If only that was true, but history has told us that bonuses have been set on short term gains rather than sustainable profits or improvements for customers and shareholders. Salaries can be based on clear goals, and should there be 'failure' of the magnitude we have seen in recent times, then those salary holders can be shown the door. Bonuses have reeked havoc in the business, an contributed to the development of speculative and toxic debt. From that we have all suffered.
I agree with Mr Cameron when he said of bankers and their bonuses: "They have got to have proper regard in terms of restraint when they have had so much money from the taxpayer and they have made so many mistakes in the past."
Absolutely, which is why they should not be surprised we may wish to cap and impose sensible conditions on such bonuses.
PostscriptSwiss voters have have backed executive pay and bonus caps in a referendum. 70% voters backed proposals to give shareholders more control an impose the world's strictest regulation of boardroom pay and bonuses.