France is the latest country to ratchet up the campaign against bankers’ bonuses, first agreed at the G20 summit in April. French President Nicolas Sarkozy has, like US President Barack Obama and Premier Gordon Brown of the UK, demanded that bankers’ pay be made public.
The ostensible reason for such a measure is that it was the fabulous bonuses paid to bank executives for short-term profits on long-term deals that turned out to be anything but profitable. The bonuses contributed significantly to causing distortion in the financial markets and led in turn to the global meltdown. The real reason, however, is that the ordinary man in the street — who might not earn in four or five lifetimes what top deal-making bankers earn in a year — is angry and looking for scapegoats. Thus politicians, barely in control of their stumbling economies, are glad to serve up greedy bankers on a plate.
Unfortunately like so many such political moves, the final reality will not match the original rhetoric. Even banks into which taxpayers’ money has been poured to keep them afloat are resisting publishing details of pay or “compensation” as the financial world calls it, because they fear the next step will be to demand such payments be capped. This they argue would mean the top flight traders and deal- makers whom they need to help recover their fortunes would be lured away to other countries and other banks which do not have such draconian pay controls.
However, this all rather misses the point. It is not simply bankers who now receive substantial pay packets. In the last 20 years top executives in every kind of company have been paid huge sums. Remuneration committees argue that there is now a market rate for the job and if shareholders want the best executive talent to lead their companies, then they must be prepared to pay for it. Once again the ordinary man in the street is put out because while his wages have increased modestly in the last two decades, his bosses’ pay has leapt by several multiples.
Demands that committees of directors which fix these massive executive salaries should be trying to fight against the trend overlook the reality that often investment fund managers sit on them and these people are very generously rewarded themselves. No one among the highly paid elite is going to start a bandwagon that will injure their own income, though predictably many have wrung their hands and protested that something must be done.
Sadly something will not be done. Multizero pay packets are here to stay. This is a Pandora’s box, back into which ballooning executive pay cannot be thrust. The rest of us will have to grin and bear it. The only consolation — if that is the right word — on offer to the man in the street is that in the US the average time top executives stay in jobs before they are fired is 36 months. Even then, however, with past pay and severance, they cry all the way to the bank.
