They were at it again this week, Britain's bankers, trying to justify the unjustifiable.
First came Barclays, which has seen fit to pay out a whopping £2.4 billion in bonuses for 2013, up 10% on the year before despite a one-third drop in profit, at a time when shareholders - from whom the bank raised £5.8bn during the year - had no increase in their dividends. How? What? How? Anthony Browne, chief executive of the British Bankers' Association, responded, predictably, by wheeling out the same old arguments about how banks had to be able to match their rivals for pay or risk losing their staff.
Meanwhile, over at 80% taxpayer-owned RBS, there was indignation at news that funnily enough no, the Government would not let it pay staff up to twice as much as their salaries as bonuses, not when the bank was still to complete its restructuring (and after it had posted its sixth consecutive loss this year, of £8.24bn). It will have to make do with bonuses of 100% of salaries instead. Cue dark mutterings about the "commercial and prudential risk" the bank now faces as a result.
What this depressing spectacle makes abundantly clear is that very little has fundamentally changed in the mindset of those running Britain's biggest banks. Six years after the financial crash, caused by the banks and widely understood to have been fuelled in part by their short-term high-risk high bonus culture, there is no sign that any of the big banks have accepted what is glaringly apparent to the average person: that top bankers are simply paid too much.
Perhaps the banks thought they just had to sit tight while the economy improved, that us worker drones would forget about their preposterous reward packages once we had a little more money in our pockets for bingo and beer. But the issue just won't go away. The sense of British decency has been roused. More than a third of Barclays shareholders voted against its remuneration package on Thursday, including institutional investors Standard Life and F&C Investments, a seismic event in terms of a bank AGM, even if it wasn't enough to reject the pay awards. One of the objectors, Phil Clarke, nailed the point when he stood up and asked why shareholders were "paying for Manchester United but getting Colchester United?" Good question, Phil. Why indeed?
It all comes back to the same, flimsy argument, that banks will supposedly haemorrhage all their most talented staff, and thereby lose their competitive edge, unless they pay what their most extravagant rivals pay, both here and abroad. It neatly absolves individual banks from any moral soul-searching; they merely spread their hands and claim to have no choice.
What this amounts to is an admission that no senior banker can be expected to have any sense of proportionality about their pay. The greediest and the most talented are assumed to be one and the same. But are those who demand the biggest rewards necessarily the most talented? Why not call their bluff?
In other areas of the economy, such as the public sector and even many other parts of the private sector, talented and highly-skilled people do not automatically flee to jobs with higher rewards at the first opportunity. Medics, for instance, get paid vastly more in the United States than they do here in the UK, but British doctors aren't deserting the NHS in their droves, probably because they recognise that they are well paid and fairly paid.
Even if one accepts the rather doubtful generalisation that those working in commercial settings are likely to be more motivated by money than those working in the public or voluntary sector, a sense of proportion and fairness still prevails when it comes to pay in most parts of the private sector. Most people consider their outgoings and future liabilities, and how much they need to cover them, and hold their salary against them when judging how well they are paid. Median gross annual earnings in the UK is £27,000. By that reckoning, a salary of £50,000 is very good, one of £100,000 exceptional. Barclays this year paid 481 bankers bonuses of £1m. That was on top of their salaries. Where is the sense of proportion in that?
It would help banks with their PR, of course, if they weren't in the habit of paying out huge rewards when profits were going down. Their riposte to this is that it would be a mistake to take a short-term view and that only by retaining the best staff can they serve the long-term interests of shareholders. But Standard Life didn't buy that line over this year's Barclays remuneration. Why would they? One is left wondering if there are any circumstances when the big banks would consider withholding bonuses.
The question remains of what would happen if banks were to lose their top tier staff following a bid to get banker pay under control. If banks were run instead by staff who were paid well but fairly, would unwise strategic decisions be made, against the long-term interests of shareholders, bringing the bank to the brink of collapse? Where is the evidence that they would? In fact, does that not sound rather more like RBS under the stewardship of its (extremely well remunerated) former chief executive Fred Goodwin?
It is clearly pointless to expect the boards of banks to do anything of their own volition about excessive rewards. The Business Secretary Vince Cable has written to them threatening tighter rules if they don't do more to cut "dangerous levels" of pay, but the Government's own position is somewhat compromised by its decision to oppose European Union legislation limiting banker bonuses to 200% of their salary. The Conservative-led Government is willing to go only so far with policies that could upset their friends in the City.
It is really shareholders who are best placed to tackle this issue. Standard Life's willingness to take a stand against pay at Barclays, stating that it was not convinced the bank had acted in the best interests of shareholders, is heartening, since institutional investors are critical to changing banker remuneration. Yet while many big investors will privately express anger at the pay-outs banks give to their staff, they also share an interest in maintaining the status quo. The remuneration committees of banks, insurance and financial services companies are a merry-go-round of senior members of the same incestuous fraternity. Even relatively enlightened Standard Life itself recently appointed Lynne Peacock as the new chairwoman of its pay committee, on £97,000 for doing a part-time job. This is the Lynne Peacock who received a £475,000 termination payment as part of a £1.5 million package for her final nine months as chief executive of Clydesdale Bank in 2010.
Standard Life still remains a beacon of hope, however. If it is prepared to use its vote against excessive pay, then so can others. The owners of Britain's banks must act, since the opprobrium of the public seems to be having no impact on banks at all.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereComments are closed on this article