Alchemy's Moulton slams bankers' pay
Jon Moulton, managing partner of UK buyout firm Alchemy Partners, has waded into the debate on bankers' pay by urging tougher capital requirements for financial institutions that encourage risk-taking with big bonuses.
Moulton attacked the compensation packages paid to bankers over the last few years at a Treasury Select Committee hearing on the transparency and stability of the UK financial system.
He said banks which encourage riskier behaviour through their compensation structure should be forced to maintain higher levels of capital.
Moulton said banks must move to a pay structure where employees are rewarded over a longer time horizon and do not receive such large upfront payments for taking risky short-term positions.
He said: “If you put people on 1,000% bonuses they’ll do extraordinary things. No one would say things haven’t gone far too far.”
Angela Knight, chief executive of the British Bankers Association, agreed that the compensation structure of banks needed reviewing, but refused to be drawn on specific proposals.
She said: “None of us want incentives that encourage bad behaviour or too much risk. This is something banks are already looking at.”
However, Knight said it was an international problem and had to be dealt with accordingly, warning the committee not to risk damaging the UK's reputation as a financial centre.
The criticism follows comments last week by Bank of England Governor Mervyn King, who said banks have to realise that excessive compensation will damage their long-term interests.
Moulton also had harsh words for the Financial Services Authority, the UK market regulator, which he said faced an “impossible” job in trying to oversee the financial system. He said that the regulator would never be able to hire the quality of people needed to oversee the system.
He said: “That job is currently impossible, however much money and people you throw at the problem.”
Moulton also took aim at investors that bought the debt for private equity buyouts last year, warning most had failed to undertake any due diligence, and that as many as 30 UK companies could face problems servicing their debt burdens.
He added: “I can tell you now the work being done by banks on private equity deals at the moment is more than has been done for a decade.”
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