Banks shouldn’t even think about bonuses
There are arguments for banks paying bonuses – but there are better ones for them not paying. In defending bonus payments the banks show that they just haven’t realized how dire their situation is.
The boards have bent to public and political pressure in rejecting personal payments, but by suggesting staff on the tills still deserve £1,000 or so these directors are perpetuating a bonus culture in which such payments are regarded as part of basic pay rather than a reward for doing something special.
That could be tolerated when banks were booming and part of the private sector; it is unacceptable now that they are nearly (or actually) bust and survive only by the compulsory generosity of the taxpayer.
When Lloyds has received £17bn of our money it should not even be thinking of handing out even £120m to staff. Royal Bank of Scotland, having received even more of our money, is proposing giving £1bn to its employees.
Directors explain the money will not go to those workers responsible for losses, but that is not the point. The pain has to be felt right across the bank – just as it is being felt right across the general economy that the banks have forced into recession.
Everyone at the banks benefited from the bubble. Boffins in head office allowed mortgage lending to explode but it was staff in the branches who doled out those loans. The foot soldiers owe their jobs and their past pay rises to the irresponsible policymakers.
Some bonuses may be contractual and it would be wrong to renege on those; banks and governments depend on respect for the law and would be foolish to set a precedent in ignoring it. But the contracts should be inspected forensically and the lucky workers made to sweat for their payments – while they still have jobs.
Banks must pay the going rate for good bankers and a salary cap of the sort planned by Barrack Obama would be wrong – as wrong was giving bonuses to lowly-paid workers but not to their bosses. But going rates have fallen considerably now that staff are being laid off and the absence of a bonus helps bring pay back to the new market level. A pay freeze of the sort being applied in other industries should be next on the agenda.
And if disgruntled bank workers – still unable to appreciate the havoc their employers have caused – think they can walk into a healthy bank on their old terms they really have failed to grasp basic economics.
Paying bonuses in equity is not an answer either. With bank shares so low, an equity payment would provide an additional windfall if market prices bounce back to past levels. Any options for 2008 performance should be exercisable at the peak 2008 share price, not today’s depleted levels.
But the message must be that bonuses are off the menu and ministers must use their holdings in RBS and HBoS to enforce the new order. Many bank workers will receive no bonus because they now have no job; the remainder should realize their bonus is that they are still employed when the organisation for which they work would be bust if it wasn’t for the taxpayers’ cash.
In even talking about bonuses the bank bosses are proving they have yet to get the point and appreciate how lucky they are still to be in business.
