"Dear shareholder, this new EU law capping bonuses is silly so we've decided to exploit the enormous and very obvious loophole. Stuff Brussels: we're not paying ourselves less. Your co-operation in this matter is greatly appreciated."
That was not, of course, how HSBC presented its new remuneration policy and system of "fixed-pay allowances", which will ensure no senior executive is disadvantaged by meddlesome politicians in Brussels. Instead, there was the usual line about the need to remain "competitive" with banks not domiciled in the EU.
Thus what senior bankers at HSBC may have lost on the swings via the bonus cap will be gained on the shiny new roundabout of allowances, or non-pensionable salaries to be delivered in the form of shares.
There is a whiff of arrogance here on the part of HSBC and the other banks that will soon follow its example. There was no hint of embarrassment about cranking up from £2.5m to £4.2m the fixed pay of its chief executive, Stuart Gulliver; that's a rise of £32,000 a week. As for how the cap-dodging will be regarded by customers, the consideration didn't merit a mention in the remuneration report.
HSBC's view is that its hand was forced. "Sadly, because of the EU directive, we've had to change," said Gulliver. He may be able to overcome any personal sadness.
While HSBC's stance is shameless, it was also wholly predictable. The EU directive was misconceived at the outset, as argued here in the past. It was indeed plain silly to place a cap on bonuses because it was bound to trigger exactly the response HSBC is now adopting: salaries and quasi-salaries would increase substantially. The EU politicians were living in dreamland if they imagined otherwise.
In the process, banks will make their pay structures less flexible, which is the fact that bothers regulators at the Bank of England. No performance conditions will be attached to HSBC's "fixed-pay allowances": they will at least be paid in shares for most senior staff, which introduces an element of discipline, but they are not subject to clawback. The Bank is right to worry that its efforts to make banks manage risks better will be undercut.
The interesting part, then, is how the Bank's prudential regulation authority responds to the combination of a badly designed directive and banks who are determined to get around the rules.
Logic says a further increase in capital ratios is required to offset the greater risks in revamped pay policies.
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image: © Gyver Chang