Queen of the City: Pay Limits for Bankers? The Debate Rages On

In the last ten years, the average FTSE 100 chief executive’s pay packet pole-vaulted up by 295%. Contrast that with the mere 50% increase in earnings of average citizen in the UK (according to Manifest, which advises investors on corporate governance). The banking industry hasn’t exactly held bank on paying itself big bucks in bad times and overhauling the way bankers’ pay works is of pressing urgency to an industry with a reputation as storm-tossed as its budgets.

On this side of the Pond, we found it a bit strange that, in the US, CEO and CFO pay at more than 100 banks on the TARP program did not decline in line with profits. In the City, there’s much dissatisfaction at guaranteed bonuses being waved at some lucky so-and-so’s by banks still owing millions to the government. Muttering taxpayers are saying “But it’s our darned dosh they’re throwing at these guys, not theirs.” The resentment among those who’ve lost jobs, bonuses and taken a big hit on their pension pots is running feverishly high.

It’s no wonder then that, this past March, the FSA, in an effort to align executive compensation with risk for bank boards and management, recommended that two-thirds of bonuses should be deferred, and that individual compensation awards should also reflect the overall performance of the business, rather than that person, team or division. More puzzling, however, is the Financial Services Authority’s recent pull back from the sterner draft suggestions.

Which highlights a big part of the difficulty of imposing pay limits: the lack of consensus among financial regulators around the globe. Even within Britain there are conflicts: while the UK Treasury may favour a tough line on banker remuneration and bonuses, Hector Sants of the FSA has defended super-size bonuses stating: “If politicians believe it is a problem that should be remedied, they should do so using the appropriate mechanisms such as taxation.” Global agreement on regulation in financial services looks to be a tough nut to crack.

‘Performance-related pay’ was a mantra (when it wasn’t an excuse) much beloved by bankers in the past. It was nonsense then, and it still is, of course. Performance as measured in bursting deal books rather than risk exposure was the norm, and some happy trading chappies danced home with enormous sums while leaving their employers exposed to a level of toxic debt that we still haven’t quite got our heads around.

And there are a very few sane voices around: Vince Cable, the Liberal Democrat Treasury spokesman, suggested (to a deafening lack of enthusiasm) that a Pay Commission be set up to measure the claims of top earners “that their rewards are justified and necessary, even if they offend our sense of fairness.”

Ah, that wonderful word, fairness. It makes me go all misty-eyed, hankering for those days of yore when the City was a fair place where one’s word was one’s bond. When you had trust, the profits followed, nice and tidily. Maybe not huge ones, but sure, steady, reliable ones.

The City is no longer a place of loyalty, trust or fairness. Mega-profit-at-all-costs mania has brought it to the brink of destruction, much the same as Wall Street. But it appears the lessons have not been learned, and I have a sneaky feeling we’ll be revisiting this topic again and again as the cycle swings first up, and then back down again, as it surely will.

I must confess that any article I write about executive pay in the financial world puts me into a minor bind: I can’t write entirely objectively about it when my family circumstances and mortgage depend so heavily on the bucks brought home by my banker husband. You’ll maybe appreciate that it’s a topic I dwell on rather a lot at the moment.

Those bucks have taken a battering in recent years, what with a couple of redundancies and an upcoming bank bankruptcy belting our income in a too-familiar scenario for many of you working in the profession. The days of socking great bonuses have been long gone for us for some years now, so it is with some bemusement that I read stories of guaranteed mega-payments being dished out to ‘rainmaker’ stars even as their employers suffer losses in markets still reeling from the crunch. It makes me royally cranky and leaves me wondering what planet are these guys living on because it certainly doesn’t look anything like mine.