The Bank of England (BoE) has proposed new rules to tighten requirements on bonus buy-outs, in which banks compensate new employees for remuneration cancelled when they switch jobs.
The new move aims to crack down on the "bad apples" in the banking industry who grab a bonus and later switch jobs before any misconduct is discovered.
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Under the new proposals, an employee’s new contract would allow for malus (the withholding or reduction of unpaid awards) or clawback (the recouping of paid awards) to be applied if the employee’s old employer reveals any wrongoing.
"Today’s proposals intend to ensure the practice of buy-outs does not undermine the intention of the current rules on clawback and malus or allow employees to avoid the proper consequences of their actions," the regulator said in a statement.
The new rules would also empower new employers to apply for a waiver if they find that the determination was manifestly unfair or unreasonable.
Prudential Regulation Authority CEO and deputy governor for prudential regulation Andrew Bailey said: "Having the right incentives is a crucial part of an effective accountability regime. Remuneration policies which lead to risk-reward imbalances, short termism and excessive risk taking undermine confidence in the financial sector.
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By GlobalData"Individuals should be held accountable for their actions and not be able to actively evade the consequences of their actions. Today’s proposals seek to ensure that individuals are not rewarded for bad practice or wrong-doing and should help to encourage a culture within firms where reward better reflects the risks being taken."
