Withhold bankers work
It’s not the government’s power as shareholder that will allow ministers to control bankers’ pay but their leverage as a customer. With so much public debt to raise, refinance and repay in coming years, they should give business only to banks that abide by the rules.
Add in the mandates for selling shares in state-owned banks and other privatisations necessary to cut public debt, plus the fees for advice on putting contracts into the private sector, and the government has a lot of clout with the bankers.
April’s G20 meeting in London vowed to control bankers’ pay, but despite codes produced by Britain, Europe and the US, governments are scared to get tough in case banks or their staff move to a regime that remains lax on rewards. Legislation has thus given way to guidelines and big banks have ignored the rules as soon as they are written.
The general agreement is that rewards should not risk the bank’s stability and be for long-term performance while bonuses should be paid over several years and in equity with guaranteed bonuses banned. But banks have carried on recruiting on terms that assume those rules do not apply to them.
Calls for governments to impose strict penalties at the banks receiving state aid would only result in those lenders operating at a disadvantage to rivals, thus damaging their value and reducing the prospect of governments recovering their investment. Anyway, the worst offenders are investment banks and most state aid, including equity injections, is to retail lenders.
France has appointed a bonus tsar to police payments, but Michel Camdessus – former head of the Bank of France and IMF – can have no real control over foreign banks operating in Paris. The better part of president Nicolas Sarkozy’s package is the threat to punish banks with offensive remuneration polices by withholding government contracts.
It is good to see a country trying to be tougher than other nations rather than bidding to offer the weakest regulation, but the rest of Europe and the US should not allow France to go it alone on this sanction. It is one every government can operate without detriment to itself, and one that would make banks comply with the codes.
