UK bank bonuses fall, but bonuses in other industries on the increase, says ONS

The total paid out in bonuses to UK employees over the 2014/15 financial year was £42.2 billion; an increase of 2.7% over the previous year and just 0.1% below the record level reached in 2007/08, according to the Office for National Statistics (ONS). While £13.6bn of this was paid out to what the ONS categorises as "finance and insurance" workers, this was a 9.6% decrease on the amount paid out to these workers the previous year. At the same time, bonuses paid to employees in other industries increased by 9.7%, according to the figures.

The ONS said that its figures may partly have been skewed by financial firms shifting the timing of 'bonus season' from the traditional December - March period to April, so that bankers could take advantage of the change to the top rate of income tax in 2013. However James Sproule, chief economist at the Institute of Directors, said that the figures "[suggest] steps have been taken since the financial crisis to rein in excess".

An EU-wide cap on bank bonus payments came into force this year, while UK banks will be required to defer more of their variable pay for longer from the start of 2016. Since 1 January 2015, banks and large investment firms subject to the revised European Capital Requirements Directive (CRD IV) have been required to limit bonuses and other forms of variable pay to 100% of a banker's fixed remuneration, or salary, in any given year. This can be increased to 200% of salary if shareholders agree.

The EU is currently targeting the usage by banks of so-called 'role-based allowances' (RBAs), linked to the seniority and level of responsibility of their employees, as a means of incentivising senior staff without exceeding the bonus cap. The European Banking Authority (EBA) is currently finalising guidance clarifying that these payments are in effect bonuses rather than fixed remuneration, and should be classified as such, which it will require banks to implement on a 'comply or explain' basis from next year.

"Bonuses falling in the City under EU pressure, which is about to intensify if the EBA guidelines are finalised as proposed, plays into the main commercial fear about the CRD IV remuneration measures: that the UK, with its large financial services sector, will be disadvantaged globally, especially in relation to operations outside the EEA," said remuneration expert Graeme Standen of Pinsent Masons, the law firm behind Out-Law.com.

"Now is the time for affected firms to start to assess this issue, and prepare to campaign on it if necessary, as CRD IV requires a review of its remuneration measures by the European Commission and the EBA to be submitted to the European parliament by 30 June 2016. This review must expressly include the impact of the measures on global competitiveness," he said.

Bonuses paid to finance and insurance staff still dwarf those paid to employees in other industries, with an average payment of £13,100 in 2014/15 compared to an average payment of £1,500 across the economy as a whole. However, bonuses as a percentage of financial and insurance salaries have fallen from a peak of 34% in 2006/07 to 20% today, according to the figures.

Employees in professional, scientific and technical services fields experienced the biggest increase in bonus value, with the average payment rising to £2,500 in 2014/15 from £2,100 the previous year, according to the ONS. Information and communications workers received the second highest bonus payment increase.

Remuneration expert Suzannah Crookes said that employers should be aware of the legal issues in relation to bonuses whatever industry they operated in, as there were "legal issues relating to bonus best practice that are distinct from the financial services regulatory points".

"Any employer needs to be careful about these if making extensive use of bonuses; especially for the first time, or to a greater degree than before," he said.