Ah. This looks like an uphill struggle. But let’s proceed. I used to work in the City of London, mainly financing companies (this creates jobs, as we found out as soon as it stopped happening. But nobody gave me any thanks and I didn’t expect any). Reading what I read in the press, it is as if, at the end of the year, the senior management ‘phoned up and said ‘Look, Tim, we’re awash with cash and we wondered if you could take any more – perhaps a million?’. Unfortunately it wasn’t like that. The job was quite well remunerated, but they paid me as little as they needed to in order to keep me (to the extent that they wanted to keep me).
But banking is well paid, everybody knows that. Why do they pay out so much, though, given that they are trying, like any business, to keep their costs down? The answer is that there’s a shortage of talent. So why don’t those people who whinge about bankers’ earnings give it a try? Take the millions and have a champagne lifestyle – why not? Actually it’s quite difficult, the hours are extremely long, there is no job security and the bonus system means that in the bad years you are likely to get a fair bit less than you were expecting.
I don’t mind anyone who is good at their job earning a lot of money. David Beckham is an example, as are several actors and actresses, musicians and artists. That’s what our system is about – people who are good making it to the top.
Of course people’s views of bankers are coloured by the credit crisis. ‘Their greed brought down the whole system, the ordinary people have to bail them out and now they are paying themselves millions again, of our money.’ That’s the sort of comment which is typical.
I think it is important to deal with this in detail. Firstly it is nonsense to say that the system was (nearly) brought down by bankers’ greed. You can take bankers’ greed as a given fact. ‘Greed is good’ said Gordon Gekko; I would say it is normal. Automobile manufacturers want to make and sell as many cars as they can; architects want to design as many buildings as they can. This isn’t greed, it’s rational behaviour in a modern society. Bankers were hungry for success in the bad times and in the good. When they invented new mortgage products enabling many, many more people to buy their houses, no one complained it was driven by greed.
The system was (nearly) brought down by politicians wanting to look like the architects of the good times. Bill Clinton instructed state controlled mortgage institutions to offer cheap loans to people who had no realistic chance of paying them back. Gordon Brown kept interest rates artificially low and hinted that he had invented permanent boom. Of course bankers recycled this vast pool of cheap cash – they were supposed to.
It is the point about ‘paying themselves with our money’ which nearly hits home. Of course the government has no business telling companies what they can pay their staff – incomes policy is regarded by economists on both left and right as having been a serious error. But shareholders have the right to decide what their employees earn and having poured our cash into the banks, the government is now a shareholder in several. So should the British Government limit the earnings of staff at Lloyds, or Royal Bank of Scotland? The problem is that the other big banks, Barclays and HSBC, didn’t take the taxpayers’ cash, so they would be able to mop up the best employees from the ones who did, these employees jumping ship, naturally wanting to avoid limitations to their salaries.
So to keep their best staff, even the nationalised banks have to pay the going rate. And if they don’t have the best staff they will earn lower profits and be worth a lot less when the taxpayer wants to sell.
So the government then descended to pleading with the banks to reduce their bonuses, particularly for Chief Executives to set an example. Here is what happened
Lloyds (Eric Daniels) 2007 £1.8m waived 2008 and 2009
Barclays (John Varley) 2007 £2m waived 2008 and 2009
Barclays (Bob Diamond) 2007 £17.9m waived 2008 and 2009
RBS (Stephen Hester) waived 2009
HSBC (Michael Geoghan) 2007 £1.9m waived 2008 donated £4m 2009 to charity
So it looks as if a few men may have given away something in the region of £50m. And where was the chorus of thanks? There wasn’t one. To the left and to the ignorant they’re still pariahs.
So this year they are forecasting a bonanza. Remuneration committees (bank directors don’t pay themselves, another popular misconception) will give them what the market thinks they are worth. It will be a lot.
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