Both the Chairman and Chief Executive of the RBS were right to hand back their bonuses, and the level at which they were set was obscene.
Of course, once they were handed back, some people – ranging from libertarians right through to ITN journalists – were complaining about a witch hunt and about how we have to face that fact that million-pound bonuses are the “going rate”. To which I say – frankly, they shouldn’t be!
First, the witch hunt: this blog is usually among the first to respond to simplistic witch hunts of this kind. Indeed, it is quite correct for the current UK Government to point out it is somewhat hamstrung on this issue by the legislation passed by the last, Labour Government. The decision by Labour to try to make an issue of this was yet another strategic blunder, for all it would do is highlight its own inadequacy in dealing with the issue of bonuses (this is yet another legacy of Gordon Brown’s determination to deal with everything by commission rather than by making proper decisions). Yet this witch hunt was absolutely correct – no one, I repeat no one, deserves or needs a bonus of that scale, no matter how paid or how determined.
Second, the “going rate”: what nonsense! If someone already paid in the high six figures wishes to leave their job because they don’t get a million-pound bonus, frankly, let them! Have we forgotten that we bought this ludicrous notion of these “genius bankers” throughout the Blair Years, only for them to lead us into economic oblivion? Remember, pre-2007, how we had to pay them these ludicrous salaries and bonuses to keep them here otherwise they would go somewhere else? Care to note that that would have given “somewhere else” the cost of the bail out that has now been imposed on the UK tax payer?
The truth of the bail out of the banks is that banks are now effectively public services – even the ones that didn’t take the bail out now know that they could avail of one should it become necessary, which essentially puts them into the public service bracket. Would we pay the head of the NI Civil Service a million-pound bonus?! If there are bankers out there who are such geniuses they can command million-pound bonuses in New York or Dubai, I say let them – then it is someone else’s risk, and some other tax payer can pay the price if (and when) it all goes wrong.
All that said, two other things are vital here. First, as noted before on this blog, it was all the revenue raised by these “geniuses” which paid for the public spending boom – that is why we now have the reverse the rises in public spending during the Blair Years, not least because they had little discernible effect on poverty. Second, we are all in this – the English-speaking world is now riddled with a culture of valuing everything by a dollar or pound sign rather than by its actual worth. Ultimately the obscene bonuses being offered to bankers are the upper and extreme end of a scale that we are all on, representative of the worst excesses of a problem to which we have all contributed.
That is why we need to recognise that these bankers’ bonuses are obscene, and they should cease, across the board. Only then will we be able to tackle the greed which has poisoned our society further down the scale.
Yep. Bonuses should only be paid for exceptional work, not for business as usual.
There is a very strong case for making part of your salary dependent on meeting your targets, but that’s entirely different.
As with the head of NI Water threatening to quit if he didn’t get a pay rise, I very much feel the bluff of these people should be called, and people interested in actually doing the job should be appointed. At a fair salary which reflects their responsibilities in full, and with a bonus package only payable in proportion to how they EXCEED their targets.
Yes, although I could see both sides, on balance I thought his bluff should have been called as well.
There is a tendency to compare salary alone. You have also to take account of a whole raft of other quality-of-life issues. Which is why the ‘he’d command X in the Y sector’ line is bunkum in practice 99% of the time.
It is not clear what you are proposing here. Are you saying that there should be a law in place to prevent large bonuses?
I do not like unwarranted bonuses any more than the next person but I also recognise also the economic importance of contractual freedom.
If there is to be reform of the law at all (and I am not convinced of a case for change), I think it ought to take the form of enabling shareholders to have more power to challenge the decisions made in the boardrooms to award excessive pay. I would not agree with giving the State the power to intervene.
I also think that there is a tendancy to over-egg, from the point of view of cause and effect, the role that large bonuses played in the banking crisis. When the Government handed over regulation of the Banks to the FSA some 10 years ago, the latter organisation was ill-equipped for the role, lacking considerably in expertise. With proper regulation of the Banks, the unwarranted bonuses would have been far less likely to occur because the amount of business that they could bring in would have been considerably restricted.
I’m not proposing anything – I’ll leave that to the elected politicians…!
I am making the point that bankers still have not remotely grasped the scale of the crisis and their own greedy role in it all. They should be punished.
However, that is not to say the rest of us had no role, as many of us like to think.
Ah, Ian, we shall see you demonstrating in the street with other moralists to ‘clean up capitalism’?? I jest.
As someone who does not earn a lot of money, I feel your moral call.
I am realistic enough to realise that in the real world investment bankers (rather then retail bankers) are not the only professionals who have through the years made themselves a protected species, who claim the ‘going rate’ even though their individual prefessional activities may not be up to the mark.
Moves are afoot to erect chinese walls between retail and investment arms of financial institutions. The idea is that banking services for the mass of the public, who rely on retail banking, ought to be protected whilst the big money will continue to follow the roulette wheel of investment banking, and other financial institutions of similar vain. In that case I can see no problem with the best financial magicians, whether they be financial traders and their controllers, who may make certain individuals, and institutions rich being rewarded with big bonus payments. The sweat shop of high finance and big numbers will only make big money (and lose it, from time to time), provided the traders feel that they see some of the action. It is the nature of the beast. If those who invest through them are also shareholders, it will be for them collectively to object to the wildest ideas of remuneration committees. and to curb payments in the case of bad, or indifferent perfomance.