The news that Reuters Breakingviews lays on us this morning – that two chairmen of global banks have asked two governments – the U.S. and the U.K. ones – to help them rein in bank pay is quite astounding.
The last time I remember anything like this happening, the chairman of the U.K. coal industry asked Margaret Thatcher to help him break the coal union’s power because of their demands for higher pay. I mean, why should you pay anyone decent wages to work down a coal mine? She responded with the most vindictive campaign of slurs and legislation I’ve ever experienced. Utterly in character for Mrs. Thatcher, of course. And after months of flying pickets, riots, fighting, marches, the unions eventually caved. And we don’t really have a coal industry in the U.K. anymore….
I’m trying to picture rioting bankers, in Gucci suits and without the overalls and the coal-stained faces, obviously, but I’m having difficulty. Besides, why riot when you can threaten to work for the competition?
But there’s the rub. The reason the chairmen have gone to their respective governments – and one is a U.K.-based bank and the other is a U.S.-based bank, both speaking on the condition of anonymity but if I were to hazard a guess I would think that at least one of them begins with a B – is that they fear acting unilaterally due to dread of a mass talent exodus.
Now, we are not generally in favor of government intervention in compensation matters due to the fact that they generally mess it up big time. But if this is the only way it can happen, and if the banks are asking for it, let it happen. But please, please, please, just ask our advice beforehand.
In fact, forget asking for it, here it is.
Our views on long-term compensation are already well-known, so major structural changes are absolutely necessary for 99 percent of banks. But here’s a possible solution to the high pay problem. Figure out how much money the banks would have been making if their respective governments had NOT bailed them out, and pay bonuses based on that.
Paul Hodgson - Senior Research Associate
