14-Aug-2009:

The City regulator, the Financial Service Authority, issued its long-awaited code of practice for City pay two days ago. The aim is to curb risky remuneration policies in the Square Mile. The 'principles' were watered down, the number of firms affected has been almost halved and the date of implementation has been delayed so banks can hand out big bonuses this year without any restrictions. Apart from that it was an outstanding piece of work. We can now all sit back safe in the knowledge that the FSA is manned by a bunch of toothless windbags who when asked to jump by City grandees simply ask 'how high?'

Since March's relatively radical consultation paper the big banks' lobbying machine has gone into overdrive ensuring that strict 'principles' have turned into less binding 'guidelines'. The tired old arguments that if we over-regulate pay in London then every Cityboy will immediately bugger off to Dubai or Zurich were once again wheeled out. Whilst this may hold some truth I can't see that many stockbrokers upping sticks and leaving London to face 45 degree summers or hang out with anally-retentive Swiss gnomes just because there are a few sensible salary guidelines in place.

There were three major principles that the FSA had previously felt were needed to reduce the reckless gambling that was endemic in the Square Mile:
1) At least two-thirds of executives' pay to be be deferred over three years (to reduce short-termism)
2) Bonuses not to be paid if the firm makes a loss
3) Pay should be based on the firm's overall profitability and not just a specific division. These have now all been reduce to vague 'guidelines.'

Interestingly, the FSA has made a bit of a big deal about banks dishing out guaranteed bonuses of over one year's length but if the FSA's main aim is to reduce risky pay practices then they're barking up the wrong tree. If you know you've got a couple of half million pound bonuses whatever the weather you're more likely to spend your time scratching your sweaty balls than taking excessive gambles!

'Our remuneration code is not going to change the bonus culture overnight' says the FSA who then went on to argue that Pope Benedict was probably a Catholic and that Dolly Parton tends to sleep on her back. The problem is that the radical change in pay practices that is so desperately needed will not occur unless there is international cooperation - otherwise each country can justify inaction by arguing that their financial services industry will suffer as all the clever bankers head off to less regulated climes. Since there is a higher chance that I'll eat my own gonads than worldwide regulatory coordination greedy bankers can sit back happy in the knowledge that bugger all is going to change. Of course, that means that risk-taking won't stop and our economic well-being is in the hands of a wunch of bankers who are incentivised to take massive short-term gambles with our economic future. Wicked.