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Few executive claw backs despite scandals

Just 14 percent global banks have clawed back payments

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A surprisingly small number of banks and insurers have clawed back executives’ bonuses this year despite scandals like the Libor manipulation, new data showed on Thursday.

Just 14 percent global banks have clawed back payments, according to recent data from Mercer’s financial services executive compensation snapshot survey, which looks at compensation in 63 global financial services companies.

A total of 44 percent of banks had clawback provisions in place prior to 2011. Since then an additional 18 percent of US and European banks have introduced claw backs, Mercer said.

Since the 2008 global financial crisis regulators in Europe and North America have encouraged the use of claw-back clauses, allowing companies to base a part of an executive’s salary on performance.

Mercer however said the low-take up of claw back provisions does not mean banks are not taking the scandals seriously.

“A small number of clawbacks doesn’t signify that the sector is ignoring lessons from the financial crisis but does raise legitimate questions about whether companies will actually seek pay-back of compensation paid,” Vicki Elliott, Mercer’s global financial services human capital leader.

Elliot said the concept of claw back often conflicts with local labour laws “so actually recouping the funds can be difficult”.

This year amid growing scandals, public concerns over escalating executive pay and investor revolts a number of high profile banking executives have volunteered to forego their bonuses.

In January, RBS' chief executive Stephen Hester and chairman Philip Hampton bowed to political pressure by waiving their bonuses, while Lloyds CEO Antonio Horta-Osorio also declined his bonus after taking time off work in 2011 on sick leave.

In the wake of his departure amid the Libor scandal last month Barclays former boss Bob Diamond gave up bonuses worth up to £20 million. He is set to receive a year's salary and a cash payment together totalling £2 million however.

Elliot said most banks have “malus conditions” on deferred compensation, which can result in reduced, or no payouts, of deferred money.

“It will be interesting to see if, at a time when the news is dominated by major banking missteps and scandals in the US and the UK, levels of clawback and malus increase in 2012,” she added.

If however claw backs fail to increase she said it would be time to review regulatory and compensation structures.

Read also:

Will claw back clauses improve performance?


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