November 12, 2012

Bonuses for 2012 in London's financial sector will more than halve to 1.6 billion pounds ($2.5 billion) in total, a study found, and some shareholders are urging banks to cut pay even more.

The handouts will keep falling until 2015, the Centre for Economics and Business Research (CEBR) said on Monday, reflecting the impact of tougher financial market conditions and public disquiet over the size of banker payouts.

Yet the impact of the squeeze on the sector goes further than bonus payments and the researchers also said employment in London's banks, brokerages and other financial sector firms - collectively known as the City - will keep shrinking.

They said this would allow rival centre Hong Kong to overtake London by size in the next three years.

Banking job cuts have hit London hard in the past three years as euro zone woes and regulation eat into firms' income, and a further slowdown in stock trading and mergers and acquisitions is expected to affect pay levels for 2012.

Payouts have also fallen after a public backlash over big bonuses, blamed for helping create the climate which led to the financial crisis which started in 2008. Shareholders upset about poor returns are becoming more demanding too.

Shareholder activist group Hermes Equity Ownership Services (EOS) on Monday called on the industry to base bonus payouts on a performance period of three to five years, rather than annual performance, echoing earlier proposals on how payouts should be calculated.

Hermes EOS, which is owned by the BT Pension Scheme, Britain's biggest private sector pension fund, also recommended banks pay only up to a quarter of their revenue to staff, rather than the current 40 to 50 percent.

Earlier this year several banks including Barclays were hit by a bigger than usual backlash from shareholders over pay when they sought approval for payout plans.

"The money that governments intend the banks to use to rebuild their balance sheets has been in large part siphoned off into individuals' pockets," Hermes EOS said in a report.

Hermes EOS, which has over $120 billion of assets under advice, said pay changes were one of the overhauls needed to make banks investible again.

Copyright 2014 Thomson Reuters. Click For Restrictions