On the day the British news media indulges in a spasm of outrage at the granting to RBS chief executive Stephen Hester of a 2011 bonus worth £963,000 ($1.5 million) in RBS shares – 60% of his entitlement under the 2010 remuneration plan approved by 99.2% of shareholders, including the UKFI which manages the UK government’s 82% stake in RBS – Euromoney sits down with the chief executive of another bank to discuss the vexed subject of pay.
The debate on this has gone all awry, he wails. All across the industry pay is coming down fast. In a classic example of the law of unintended consequences, it is only policymakers’ and regulators’ pressure to reduce variable bonuses and instead increase fixed pay as a proportion of total remuneration that has prevented it from falling even further in line with sinking revenues and profits in investment banking.
The banker claims the industry has done a good job of aligning pay with the risks taken to generate revenue and profit. And he hits out at regulators such as Mervyn King that urge banks to retain earnings to boost capital rather than distribute it in pay to executives.
“We don’t highlight this very often, but if you look at it from society’s point of view, with the higher-rate tax band in the UK of 50%, 50 pence in the pound of bankers’ pay comes back to the exchequer. If we rather retain it as profit at the corporate tax rate, the exchequer receives only 25 pence in the pound.”
So there you have it. The reason why bankers should be paid more is because it helps society. They are doing their bit after all. And this banker isn’t ashamed to say so.
For some reason, though, he doesn’t want Euromoney to quote him by name.
