Jul 11 2013

Of bankers, grey men and grey suits

Published by at 8:09 am under Europe,Opinion,Top Stories

On October 6, 2008 I wrote  (here) under the headline “Cowboy capitalism is dead” that we’re heading back to the 1950s and 1960s, when bankers were “grey men in grey suits”, earning little more than the local school teacher.

Today, about five years later, it’s official: the EU pegged the salaries of managers working at banks on taxpayer lifelines to 15 times the national average salary. In the UK the national average is 31,413 pounds sterling, in Germany it is just short of €30,000.

That’s not exactly a grey-man-in-a-grey-suit salary, but we’re heading in the right direction. Now for the next, much needed step: the extension of this salary cap from banks on drips to ALL banking institutions, including investment and asset management firms.

Here is the (shortened) article announcing the cap in today’s Financial Times:

EU moves to curb executive pay at bailed-out banks

By Alex Barker in Brussels

Executives at Royal Bank of Scotland and other European banks that receive fresh state support would wave goodbye to seven-figure salaries under new EU rules that peg their pay to average wages.

The cap sets a new bar in the EU’s clampdown on financial sector pay and is included in Brussels’ revised rules on state aid for failing lenders, which automatically come into force from next month under its executive powers.

 Senior staff at banks receiving new state funds will earn, as a general rule, no more than the higher of 15 times the national average salary or 10 times the wages of the average worker at the bank. Bonuses will also be capped at twice fixed salary, replicating a measure that will apply to all EU banks from next year.

The exact conditions would depend on the type of intervention. But if the pay curbs were imposed in full, senior RBS staff including the chief executive would see their total pay including bonuses and share awards capped at about £471,000 – 15 times the UK national average salary of £31,413.

Stephen Hester, the outgoing head of RBS, earned £1.2m in fixed salary alone, which is closer to 38 times the average wages in Britain and 35 times those of RBS staff.

The European Commission hope the curbs – which also demand the removal of executives at failed banks – will protect against moral hazard and motivate bailed-out banks to pay back taxpayers promptly.

“There should be incentives for banks’ managements to undertake far-reaching restructuring in good times and, thereby, minimise the need to recourse to state support,” the guidelines state. The restrictions apply until the end of a bank’s restructuring plan or the repayment of state support.

The exact peg is similar to restructuring plans in place at some rescued banks. In Germany, absolute pay caps of €500,000 were enforced at HSH, NordLB and BayernLB.

The approach will come as a shock to the financial sector, particularly at investment banks where scores of staff could see their pay cut to a fraction of current levels. RBS argues that unless it pays competitive rates it will be left without the expertise to operate a highly complex bank, making it harder to repay taxpayers.

Thanks to the Financial Times, the best business newspaper north of the Sahara.

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