If it were a Hollywood blockbuster, it could be called The Five Years of Living Dangerously.
If it were a Hollywood blockbuster, it could be called The Five Years of Living Dangerously. Sadly, this was real life. Figures from the union Unite on the level of pay and bonuses showered on the bosses of Britain's leading high street banks are not new. But, set against the rising tide of business failures, home repossessions, redundancies and personal bankruptcy, the statistics retain the power to shock.
Since 2003, the chief executives of the big five, three of whom now require bail-out deals from the UK taxpayer, have scooped up between them more than £54m, not including shares. They range from nearly £7m for Andy Hornby of HBOS to more than £15m for Sir Fred Goodwin of RBS.
The conventional excuse, that this was the level of remuneration required to attract and retain the best people, has always been questionable, and certainly no longer applies in the current buyers' market. In an industry where staff are routinely expected to accept below-inflation pay settlements, and perform unpaid overtime in pursuit of challenging performance targets, the level of largesse showered on the men at the top was never justifiable. Worse was the manner in which these contracts ensured continuing bonuses to the point of rewarding failure. Worst of all was the way the structure of these packages contributed directly to the banking crisis by incentivising high-risk short-term strategies.
The current situation is not purely the fault of bankers. It is partly the consequence of several years when unhealthy quantities of capital were swirling around in the banking system and partly because individuals have bought into a buy-today-pay-tomorrow culture. At the same time, bankers must take responsibility for their own actions. Nobody forced them to lend irresponsibly or create derivatives that were too complicated for managers to comprehend, or become dangerously overleveraged.
Tackling bankers' bonuses was meant to be a condition of the government rescue package for RBS, HBOS and Lloyds TSB. Yet both RBS and Lloyds have assured staff of continued bonuses and Eric Daniels of Lloyds has even spoken of "business as usual" by next year. And, though there has been talk of senior executives foregoing bonuses this year, the system is crying out for fundamental reform.
Without government support and guarantees, they would be struggling to do business. Banks must stick to their side of the bargain or the government must force them to do so, through placemen on their boards and, if necessary, through legislation.
Barclays' insistence on going to the Middle East for its capital infusion, despite unfavourable terms, looks suspiciously like an attempt to avoid government intervention on executive pay. Yet all banks must realise that the bonus culture has brought them into disrepute and their hubris has angered customers. In future, bonuses should be proportionate, transparent, sustainable and paid in shares that tie an individual's package to ongoing performance. The days of rewards for failure are over.
