Bank pay curbs should go all the way down
Why bother being boss of a big bank if you are not allowed to take the rewards? Lloyds Banking Group’s chief executive has followed Barclays’ and RBSs in bowing to public pressure in rejecting bonuses. Yet while they make the sacrifice, bankers at lower levels keep their windfalls.
It is not only banks where sackcloth and ashes have become the new fashion. The CEO, finance director and exploration head at Royal Dutch Shell have agreed to an 18-month pay freeze with two of that top trio accepting 20 per cent less than their predecessors. That is their way of appeasing shareholders who last year rejected Shell’s remuneration report because of the bonuses paid.
But if the top directors limit their pay when other tiers of management continue to collect their rewards, there will be a bunching of remuneration that gives little financial incentive to accept promotion. It might even be that deputies who are free to collect a bonus are paid more than their boss who cannot.
Companies must have a staircase of remuneration to accompany their hierarchy of management. Chief executives must be paid more than marketing directors, who earn more than the head of sales, who in turn receive more than their deputies, whose pay should exceed the regional sales heads, whose earnings should be higher than the local reps – all the way down.
Curbing top pay upsets that natural order and has been done only to kowtow to shareholders, governments and a baying press and public. Barclays’ chief executive and president are waiving their bonuses so that £2.7bn can be paid in bonuses to other staff. RBS’s chief has volunteered to forego his bonus so that the state-owned bank can pay £1.3bn to other employees. Now Lloyds’ CEO feels obliged to sacrifice his bonuses for the second year running.
Exactly why Eric Daniels at Lloyds was entitled to a maximum £2.33m bonus is a different matter. He may have done well in 2009 by making a record rights issue to save the bank but it was his takeover of HBoS the previous year that made rescue necessary.
But Stephen Hester can take no blame for RBS’s problems. He was recruited as CEO after the crash to save the bank, so why should he be punished because of its problems when he is the supposed solution. There is no fairness in promising him high rewards if he succeeds then pressurising him to reject them when he has joined.
It may well be that all bankers are still vastly overpaid, but the cuts should go all the way down – not start and stop at the top.
