Tom Gosling, head of PwC’s reward practice, said: “The Prudential Regulation Authority has taken on board some of the industry’s feedback, as the final clawback rules represent a more sensible and workable set of proposals compared to the draft.
Tom Gosling continues: “Firms concerned about the wide net cast by the draft provisions will take comfort that the final rules are more targeted – the overall period that bonuses are subject to clawback now includes any deferral period, the rules can't be applied retrospectively and the circumstances in which clawback can be used have been tightened. Despite these changes, the rules will still be seen as radical compared to what is being implemented outside of the UK. The rules will put the UK at the forefront of banking pay reforms and far ahead of competitors in the rest of the EU, the US and Asia.”
“Although the likelihood of clawback is small, the implications for UK banks’ competitiveness can’t be ignored – especially for UK banks operating overseas. Given the choice between working for a British or foreign bank outside the UK, the stringent pay rules in place for UK banks is likely to be a key factor in people’s decisions. The probability of losing seven years of bonuses through clawback may be small, but the implication is so big that employees will have difficulty assessing the risk rationally. As a result, British banks will end up paying a premium to attract people outside the UK, and more in fixed pay then their foreign competitors.
“Regulators are hoping the rules will help re-build trust in the City, but our experience suggests that structural pay changes have limited impact on behaviour. The risk is that the new rules create a distraction from the work that banks are already doing to reform culture and improve conduct. The rules will also have implications for where banks locate their activity. Business areas where bonuses are a key factor, such as trading desks, could increasingly be built outside of London.”
