6 September 2009
Bonuses are back. That much became clear when the Royal Bank of Scotland, 70%-owned by the taxpayer, agreed a £9.7m package with its new-ish chief executive Stephen Hester (pictured above) in June.
In August it emerged the bank is handing multi-million golden hellos to other staff. Recipients included bond trader Antonio Polverino, poached from failed investment bank Merrill Lynch with a £7m guaranteed package in year one. RBS handed Bruce Van Saun, who joined as finance director from BNY Mellon, a £2.3m guaranteed bonus including £1m just to stay with the bank for two years. The bank’s head of restructuring and risk Nathan Bostock, a former colleague of Hester’s at Abbey, had to make do with a paltry £420,000 in shares.
Bankers like to pretend they have to pay astronomical sums or they will lose what they call “global war for talent”. In my view, such arguments self-serving claptrap, a convenient myth perpetuated by “remuneration consultants” whose main interest is seeing bosses’ pay rise and rise (they’re paid a proportion).
The mantra has also been disproved by the credit crisis. Wasn’t it obscenely over-paid bankers who thought they had banished risk and who thought that property prices had entered a permanent upwards trajectory? Weren’t the people who created this crisis though their own greed and misplaced faith in theories that even a nine-year-old could have told you were absurd, motivated to do what they did by obscene bonuses?
In November 2002, the late Alastair Ross Goobey, the then chief of Hermes Pensions Management and chairman of the International Corporate Governance Network, said that claims for the existence of a global market for executive talent were “so much hooey.” Astonishingly, neither the government nor UKFI have yet woken up to this fact, and continue to think its okay for banks they own to dole out guaranteed bonuses and “golden hellos” as though nothing had changed!
At this weekend’s G20 finance ministers’ summit, proposals from the German chancellor Angela Merkel and French president Nicolas Sarkozy for a cap on bankers’ pay and bonuses were rejected after the chancellor, Alistair Darling, warned they would be unenforceable. However banks are likely to be forced to disclose the salaries of their top earners and to claw back their bonuses if deals collapse within three years.
After the meeting, it emerged that the government has successfully kicked the whole issue of bonuses into the long grass. Darling told journalists it was being farmed out to an international body for ‘examination’. The Financial Stability Board, made up of representatives of central banks and regulators from around the world, will examine ways of monitoring the size of bonus pools in major financial centres. Conveniently for Brown and Darling the inquiry could take months if not years.
In today’s Sunday Herald my former colleague Iain MacWhirter explores the theme. Towards the end of Take the money and run, he writes:
When bankers are engaging in deals that could make them independently wealthy within a couple of years they are hardly going to be bothered about the long-term health of the financial institution they are working for, let alone the wider economy. They take the money and run. Like Sir Fred Goodwin, who destroyed his bank, handed the losses to the government and then walked away with a pension pot of £13m.
But where is the outrage? It seems only yesterday that the Sun was attacking “scumbag millionaires”; the Treasury Select Committee has called for an end to the bonus culture and even George Osborne, the shadow chancellor, called last month for an end to bonuses in state subsidised banks.
Every opinion poll on the subject has shown that the voters are disgusted by the bonus culture. (This has nothing to do with the politics of envy, let alone Marxism. What the bankers are doing has nothing whatsoever to do with private enterprise. If the free market had been allowed to function, all of them would be out of a job.)
The bankers have simply become too powerful. They are deaf to public opinion, beyond political control, dismissive of regulation and seemingly immune to any kind of moral constraint. There must be outrage – if we allow them to get away with this, we will only be laying the ground for the next financial crisis. It is time for the public’s voice to be heard.