U.K.'s Brown Says Bonuses Should Be Reclaimable

LONDON, Feb. 12 -- British Prime Minister Gordon Brown said Thursday that banks should be able to reclaim, or "claw back," bonus money paid to bankers if it later turns out that their job performances did not merit the bonus.

"It should not be a one-way bet," Brown told a parliamentary committee questioning him about lapses in the banking industry that contributed to the global financial crisis. "In other words, if you fail, there is a clawback which is also possible within a bonus system."

Brown has been a fierce critic of the multimillion-dollar year-end bonuses that have routinely been paid to bankers and traders who were already earning multimillion-dollar salaries.

That system has become an object of outrage, in Britain as well as in the United States, as the public focuses more closely on the vast amounts of money paid to bankers whose practices nearly collapsed banks and led to multibillion-dollar taxpayer-funded bailouts.

Brown did not explain how banks might reclaim money already paid and possibly already spent. A spokesman at his 10 Downing Street office also said he had no details of what Brown was suggesting.

Brown told the committee of senior legislators that banks must institute a bonus system that rewards strong performance over a number of years.

"The short-term bonus culture of the banks has got to end, and we are putting in measures that will bring that to an end," he said, proposing that Britain's financial watchdog, the Financial Services Authority, be given new powers to penalize banks that reward risky deals for short-term gains.

Brown said no bonuses had been paid by the Royal Bank of Scotland or HBOS since government bailouts made the British taxpayers the major shareholders in those banks.

"We have laid that down as a condition to each of the banks in which we have taken an interest," he said.

Brown noted that some bank employees outside top management rely on the bonus system to make their living.

"While I am aware that there are thousands of poorly paid bank employees in this country who rely on their bonuses, we must ensure that we protect the public interest," he said. "We are determined not only to make our banks clean of the problems that have existed, but to ensure that they operate on good principles and that the rewards are only for good, sustainable, long-term benefits."

Also Thursday, Britain's Serious Fraud Office said it had launched an inquiry into possible "criminal conduct" at a British subsidiary of American International Group (AIG), the insurance giant that was saved by a massive U.S. government bailout last year.

"We will use our full range of powers to seek information and to speak to those with an inside knowledge of the company's operations," Richard Alderman, director of the fraud office, said in a statement. "It is right for us to look into the U.K. operations of AIG Financial Products Corp. to determine if there has been criminal conduct."

The statement said British investigators were cooperating with U.S. authorities to probe the company, which is AIG's London-based financial products unit.