1. UK Regulation of Financial Firm’s Bonuses (2009)<br />To safeguard against another financial crisis, the British government took steps to regulate the pay structure of future contracts in financial institutions. The measure intends to deal with “reckless” risks. The legislation will aim to toughen banking regulation and let customers take action against financial institutions which are either British banks or global investment banks that have operations in the United Kingdom such as Goldman Sachs. The Financial Services Authority (FSA) will have the power to cancel bankers’ contracts to prevent them from receiving payments that may cause instability in the financial system.<br />Media Coverage<br />As a way of policing the financial sector, British P.M. Gordon Brown said consumers would be empowered quot;
to hold banks to account by taking collective action to get redress when many people feel that they have been badly treated.quot;
Experts are straddled over the effects of regulation. Various media outlets have followed inline and have tried to offer bipartisan coverage. With UK elections to be held in a few months, expect more opinionated views in future articles. <br />Competition<br />The limitation on bonuses calls into question the future of the UK as a global financial hub. The advent of such regulation may, at the least, hinder British companies to attract talent because they may head to countries with more lucrative contracts. Any controls on the financial industry may make existing big firms more profitable, and make it harder for new competitors to emerge.<br />However, the need for financiers is global and companies with offices in the UK may adopt such pay structures in many departments. The UK has long been a financial hub and the government expects that a tough supervisory and regulatory regime would only help attract businesses to the country. <br />Circumvention<br />Some believe the legislation may not achieve its intended goals. Assuming there is uncertainty in the markets, the government may not be able to properly comprehend the long and short term risks of financial positions which may result in incorrect rewards. This may increase macroeconomic risk because it may encourage front-loaded compensation which would distribute the “guaranteed bonus” to the base salary. <br />While not experts in pay structure, some believe it is the duty of the government, according to Colin Breed, liberal Democrat member of the Treasury Select Committee, to be the ‘grit in the oyster’ - challenging management and being constantly refreshed. They believe that corporate governance needs to be rebuilt to protect consumer interest. <br />Conclusion<br />The Golden Rule - he who has the gold makes the rules - has never been as evident as it has in the past year. The government has taken a leadership role by direct intervention in the financial system. The long term benefit of such policies is unknown but the short term change would be to give regulators the power to stop bankers from pocketing big bonuses that adversely affect markets. If such policies are effective, other countries may follow. For now, the eyes of the financial world will be on the UK. <br />