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 A bonus buyout is when a rival employer offers to honor a new hire's
bonuses awarded by their former employer.
Buyouts must be structured so that they vest no earlier than the
awards they replace, meaning the deferred portion of the bonus
cannot be cashed in any quicker, the BoE's Prudential Regulation
Authority said in statement
Most of a bonus is now deferred over several years to stop bankers
being reckless to earn a bigger award. The delay makes it easier to
claw back money if misconduct is uncovered.
Policymakers were concerned that if left unregulated, a buyout can
be used to effectively wipe the slate clean for bankers if
misconduct is later uncovered in their old job.
"Effective financial regulation involves creating appropriate
incentives to encourage individuals to take greater responsibility
for their actions," BoE Deputy Governor for Prudential Regulation,
Andrew Bailey, said in a statement.
Last year the PRA set out four options, including a ban, on how to
stop buy-outs being used to insulate bankers from being punished
financially for past misdeeds.
The supervisor then signaled that an outright ban was unlikely given
it would have "major adverse impacts on competitiveness" of British
lenders as a prohibition could not be applied to foreign banks.
Tuesday's confirmation will come as a relief.
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Tuesday's policy statement on banker pay from the PRA and the
Financial Conduct Authority also confirmed that the deferred portion
of a bonus for a senior manager would be paid over seven years,
three years longer than previously indicated.
Bonuses for non-executive directors are also banned.
(Reporting by Huw Jones; Editing by Louise Heavens and Keith Weir)
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