The Bank of England expanded its bonus pool and took on the most staff in more than two decades as the financial crisis stressed out its officials.
The bank lifted the budget for the bonus pot in the year through February to 8.1 per cent of salaries from 7 per cent in the previous year, according to its annual report published in London yesterday. The number of full and part-time employees rose by about 6 percent to 1,857, the first “significant” addition since 1987.
“Clearly the bank is under a lot of pressure at the moment,” said Colin Ellis, an economist at Daiwa Securities SMBC Europe Ltd. in London who left the central bank in October. “You may not agree with all the policy decisions they’ve taken but I have no question in my mind that the bank staff work incredibly hard, so I’m not sure that you can begrudge them their bonuses. They surely deserve it.”
The Bank of England grappled with the near-collapse of HBOS Plc and Royal Bank of Scotland Group Plc, brought interest rates to a three-century low and began unconventional policy measures to fight Britain’s worst recession in a generation. The staff increase contrasts with the rest of London’s financial services industry, where companies may cut thousands of jobs this year.
“The increase in staff numbers was due to the extra workload brought on by the bank’s new responsibilities,” the bank’s non-executive directors said in the report. “In recognition of the exceptional workload over the past year, the bank increased its bonus and special payments budget.”
Expertise needed
Amit Kara, a former bank official who is now an economist at UBS AG in London, said that the increase in staff may also reflect a need for people with specialized knowledge as the central bank buys assets to aid the economy.
“Their work is cut out for them,” Kara said. “I’m not surprised they’re hiring more people because they have to gain expertise on the credit side which they did not have strength in particularly.”
The banking department posted a record pre-tax profit of £995 million ($1.5 billion) in the year, up from £197 million in previous 12 months, the report said.
The report also noted the amount of stress that events of the past year have placed on officials. The crisis will prompt financial services companies to cut about 29,000 jobs this year before employment growth resumes in 2010, the Centre for Economics and Business Research forecast on April 20.
Crisis stress
The directors have “been concerned about pressures on staff, particularly on key individuals in the markets and banking areas” and have raised questions on whether “actions were being taken to recruit and redeploy staff and to manage the risks associated with the exceptional levels of stress in many parts of the organization,” the report said.
The bank’s directors still said they’re satisfied that the issues are being managed effectively. Governor Mervyn King reiterated a plea for the bank to assume even more authority to contain future banking crises. “The bank’s new statutory responsibility for financial stability is welcome,” King wrote in the forward to the report. “But, as I have made clear, I regret that the new responsibility has not been accompanied by any new powers to deal with banks before they fail.”
King’s salary rose 2.5 per cent to £297,920, while pay for former deputy governors Rachel Lomax and John Gieve increased by the same amount, to £246,338. Charles Bean took over from Lomax on the same salary, the report said. None received bonuses. Inflation was 2.9 per cent in March.
King’s personal pension pot rose 11 per cent to £5.36 million. The central bank stopped contributing to King’s pension fund when he started his second term last year.
“Bank staff are quite proud of how they’ve operated under fire,” Ellis said. “They’ve been working very hard but it’s been quite interesting. There will be more interesting work as the bank exits quantitative easing.”
