Brown vows to shake up banks' bonus culture

LONDON (Reuters) - Prime Minister Gordon Brown, seeking to head off mounting public anger over bankers’ bonuses, pledged on Monday to end rewards for failure in a financial system crippled by the credit crisis.

However, Brown stopped short of banning bonus payments in banks which have received state backing despite a senior figure in his Labour Party saying such rewards would be “economically and politically outrageous.”

With the economy in recession, there has been widespread criticism after reports that state-backed Royal Bank of Scotland may pay out 1 billion pounds in bonuses, even though it has just posted the biggest ever loss for a British company.

“We are leading the way ... in sweeping aside the old short-term bonus culture of the past and replacing it first of all with a determination that there are no rewards for failure,” Brown said in a speech in London.

Banks around the world have come under pressure to slash this year’s bonuses. U.S. President Barack Obama described reported Wall Street bonuses of $18 billion (12 billion pounds) as “shameful” and the “height of irresponsibility.”

Related Coverage

Banks in France and Switzerland were among the first to announce cuts to this year’s bonus payments.

Barclays said bonus payments across the bank would almost halve for 2008 as it reported a 14 percent drop in profit on Monday.

“We feel the heat individually and as an organisation,” Barclays chief executive John Varley told reporters.

One of Brown’s senior ministers said bankers who lost money during the downturn and received state help have a “moral responsibility” to reject bonuses this year.

Prime Minister Gordon Brown speaks during a seminar to set out the agenda for April's G20 leaders' summit in London, February 9, 2009. The International Monetary Fund and the World Bank are not fit for purpose and need to change dramatically in the wake of the worst financial crisis in living memory, Gordon Brown said on Monday. REUTERS/John Stillwell/Pool


“City bankers who think that sweeping bonuses are justified this year must be on another planet,” Treasury minister Yvette Cooper said.

“It would be unfair and unacceptable for them to get big payouts this year when their banks have been bailed out by the taxpayer. That’s why we’ve told the banks where we own shares that bonuses must be curtailed.”

However, Cooper said it may be hard to compel banks to scrap bonuses because staff have payments written into contracts.

Former Labour deputy prime minister John Prescott said the government should ban bonus payments within banks which received government capital in two rescue packages.

“This is morally and economically outrageous,” Prescott said on the Facebook social networking site, where he launched a campaign to stop the bonuses. “This is raw capitalism and this country rejects it.”

Conservative leader David Cameron said bankers should “wake up and smell the coffee” and understand that some of them wouldn’t have jobs without state help.

The economic gloom has boosted Cameron’s poll lead ahead of an election due by May 2010. An ICM survey in the Sunday Telegraph put the Conservatives up four points on 40 percent, ahead of Labour on 28 percent.

Chancellor Alistair Darling has ordered a review into the banking sector’s salaries and bonuses as part of a wider study of banks’ corporate governance and risk management.

Additional reporting by Steve Slater and Matt Falloon; Editing by David Holmes and Greg Mahlich