Order of the Day - Remuneration of Senior Staff of Rescued Banks

26 Nov 2008
Ms Abbott: Does my hon. Friend agree that there is an interesting parallel with the situation in the US, where Fannie Mae and Freddie Mac—robust, new deal institutions—were deregulated at about the same time? The results for the American financial system were similarly terrible.

David Taylor: I shall be coming to that point, but my hon. Friend has identified a good and close parallel.


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Ms Abbott:
My hon. Friend the Minister says that he sees no reason why the conditionality that the Government have imposed on payments and bonuses should not be followed, but the conditionality imposed on lending money has blatantly not been followed. Why does he think that one set of conditions will work when another patently has not?

Ian Pearson: Directors of the recapitalised banks are very much in the public eye and will continue to be so for the foreseeable future. We have been very clear about the conditionality that we want on executive remuneration, and we will continue in that manner. We have powers to the banks, and we have absolutely no reason to believe that they will not continue to take a fair and appropriate line on directors’ pay and executive bonuses. We certainly do not condone any reward for failure, and we expect the relevant bank’s board to support the removal of any directors for a failure to deliver against their agreed strategic objectives.

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Ms Abbott: Even if hon. Members do not agree that bonuses are wrong in principle, they must surely agree that they are wrong in practice, because those bonuses were tied to the sale of products that we now find are worthless. Does my hon. Friend agree that unless something is done about the bonus regime in the City, people will continue to follow risky, short-term strategies to secure high bonuses at the expense of the long-term health of companies and the economy?

Harry Cohen: That is absolutely right. I agree that the bonus culture must be tackled effectively now. There is even a case for back-dating that approach in relation to directors who got us into this mess and made those worthless “investments”.



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