Why Scottish bankers could be cheering bonus clampdown

While much of the attention around the 'extreme' suggestions put forward in The Future of Banking Commission report has been around 10-year bonus deferrals and a potential Glass-Steagall approach to splitting investment and retail banking functions, other proposals could hit the majority of bankers north of the border.

The report suggests that frontline and branch staff should not be rewarded for increasing sales, but instead bonuses should be judged on rather qualitative criteria like levels of customer satisfaction, the fair treatment of customers and resolution of complaints.

The likes of HBOS and RBS have been accused of aggressively cross-selling products at both a retail and commercial level, and ambitious targets set for frontline staff were believed to one of key contributors to their dire situations.

"These sales-based incentives lead to a conflict of interest between the consumer and the bank," says the report. "They encourage banks to recommend courses of action which result in the sale of a product, rather than providing advice that is suitable for the customer. The setting of ambitious sales targets, with the consequent threat of dismissal if they are not met, has a similar effect."

The long-term deferral of bonuses within investment banks - where remuneration typically makes up 40-50% of revenues - would cause a storm in the City. However, this crackdown is unlikely to create the same affect in the retail space.

One banking recruiter in Scotland tells us that bonuses have "little, if any sway on a person's decision to move" and it's easy to see why. HSBC, for instance, says that variable pay makes up just 9% of total compensation for most retail bankers. What's more, there's a general dislike of the sales-focused culture.

"The main problem is that sales targets are set on high and filtered down to individual staff, who are well rewarded if they succeed, and threatened with disciplinary action if they underperform and don't achieve targets. No wonder there is so much mis-selling," one senior banker commented.

The Future of Banking Commission also seems keen to avoid any reduction of bankers' total comp by removing sales-based remuneration. It says the move should be balanced by "increases in basic salary and rewards for providing good customer service".