Whenever there is a financial scandal, someone asks: “Where is the regulator?” The answer may soon be: “Strike.”
Second, Trade Unions Start voting for employees at the Financial Conduct Authority for Industrial Activity. It does not say how many FCA employees are members, and the union is yet to be officially recognized by the watchdog. But it’s clear enough that morale is low, turnover is high and this is a new problem in employer-employee relations – something that for a governing body has had to staff fight for defecation on the floor in its new headquarters, is something.
The nasty thing is about the salary reform proposals. There is little doubt that the regulator itself needs reform. A scathing report on London Capital & Finance’s handling of a minor scandal made that clear. Bondholders lose thousands. The FCA executives lost their bonuses.
The governing body is now under new management. Managing director Nikhil Rathi has set its sights on creating a more innovative, assertive and agile organization. He wants to harmonize the pay scales to make it easier for employees to move around and split the vaults in the process. Few in the industry would object to the red tape from Stratford’s financial enforcers.
The question is whether forcing individuals to take a pay cut is the best way to increase performance.
The Board of Directors wants to change the bonus system to incentivize employees to achieve the goals of the FCA. These are hard to incentivize: it is difficult to develop key performance indicators to measure consumer protection from harm, strengthen the integrity of the UK financial system and promote compete.
So it’s easy to see why FCA ended up with a system where its bonuses weren’t really bonuses. Instead, the 70 to 90 percent of people who at least accomplish their goals — do their jobs — receive “discretionary” payments of about 10 percent or more each year. In this case, the 10% increase doesn’t really pay for the better performance. It’s more like basic pay. And the new plan removes it.
Employees will get a base pay increase if they achieve their goals and are not high earners. But these raises will be less than under the current system, even if they add up over time. The lowest paid person will receive a larger salary increase. However, that still means most people get an immediate pay cut.
Reducing the bounty is not a bad idea in principle. Very few people join a governing body because of the money they make while there. But trying to cut variable pay without increasing base pay is a daunting task that needs to be handled with delicacy. And that’s why the managers of the FCA seem to have fallen so badly.
Rathi’s reformist enthusiasm isn’t a bad thing – FCA’s top performers don’t have much time for the role. But a pay reorganization is more sensitive than a reorganization — and his timing sucks.
Working for a watchdog can feel ungrateful at the best of times. This is not the best time for FCA. Staff did not work well, first because of Brexit and then the pandemic. The LCF report barely helped morale – a report on Neil Woodford’s downfall has yet to come out.
If FCA is subject to constant criticism from the outside, it is most important that the staff have an internal champion. To some, however, Rathi seems to have joined the ranks of critics. His comments dismissing staff concerns about pay cuts because of “noise” at the Treasury’s selection committee last month will do nothing to assuage dissent.
The reforms seem likely to be pushed through regardless. Inertia means more employees will stay and anger will subside. But the FCA could be stuck with a more antagonistic workforce. That will do nothing to enhance the reputation of a regulator already seen by many as a second-rate choice for the Bank of England and the private sector. In his bid to reform wages, Rathi has made the job of reforming the FCA more difficult.
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