Limiting a primary school headmaster’s pay – or any other public servants’ salary – to less than the prime minister’s £142,000 remuneration has a popular appeal to the majority who are paid below that figure, but it is a crude form of wage restraint that will backfire.
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Now that Britain’s new prime minister is cracking down on public-sector bonuses, let’s hope the private sector follows. Payments that were meant to be for exceptional performance are now handed out for ordinary and even below-average accomplishments.
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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.
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Let the banks pay their inflated bonuses – but force them to back each £1bn awarded with another £1bn of new capital. It could be a better brake on bonuses than a windfall tax on the banks or higher income tax for the bankers.
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Ministers should not be getting tough with RBS (LON:RBS) for paying bonuses to investment bankers – it should be getting tough with the bank for paying any bonuses at all, even to counter staff at NatWest or Coutts.
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It’s taken a long time to get a policy statement from shadow chancellor George Osborne, but now it has come, his call for curbs on bankers’ bonuses risks generating sympathy for the villains.
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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.
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It would take the worker on minimum wage 226 years to earn the annual pay of a FTSE 100 chief executive, says the think-tank demanding a High Pay Commission. Actually, the average workers on minimum wage wouldn’t become a CEO if they had 226 years to try.
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The debate over top pay is not only whether bankers should be capped when footballers are not. Any company offering incentive payments to its salesforce should be wondering if it has got the formula right.
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Banks should name their highest-paid non-directors, according to Treasury minister Lord Myners. Why? To better inform shareholders? So that customers can switch bank? Or merely to satisfy some prurient public interest?
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