[ by Larry Goldfarb ]

While American bonuses have remained stable and have even spiked up for a number of high performing sectors, bonuses in London have fallen off the proverbial cliff.  The bonus pool in London's financial services industry, once credited with helping everything from house prices to sales of luxury cars, is expected to fall to 1.6 billion pounds ($2.6 billion) this bonus season, down from a peak of £11.6 billion in 2008, according to think tank the Centre for Economics and Business Research.

This dwindling pool can partly be accounted for by:

• the decline in lucrative fundraising and merger and acquisition activity. And the pool will be shared between fewer bankers than in more than a decade as job cuts deepen.
• public relations problem that would make the awarding of large bonuses difficult.  Most of the big banks have been part of at least one of the recent scandals. They now feel under pressure to manage the bonus season appropriately, and they know it's going to be reported very closely," Gillian Chapman, head of employment and incentives at Linklaters.

Not only are bonuses down, but European regulators are looking for evidence that banks had clawed back deferred bonuses from people involved in scandals.  These claw-back clauses are relatively untested and "not as straightforward as you'd think," Chapman pointed out.  The fallout of the recent Libor scandal could see some of the first tests of these clauses if banks like UBS and Barclays try to get bonuses back from individuals dismissed following the scandals. 

Chapman notes that the European clawback proposal, could affect remuneration if investment banking returns to rude health.  There are concerns that the new rules could chase bankers away to non-EU countries like Switzerland or Singapore, and lead to shrinking tax revenues.

For more information, please read [CNBC, 1/4/12].