Latest pay row shows bank bosses’ huge remuneration is still a touchy issue in UK

Source:Global Times Published: 2017/12/5 21:18:39

The debate over bankers' pay is back with a vengeance in Britain. In one corner stands UBS Chief Executive Sergio Ermotti, who suggested that criticism of high remuneration is driven by envy. On the other, leader of the opposition Labour party Jeremy Corbyn, who ramped up attacks on bankers after a sell-side analyst criticized his policies. The row shows the enduring costs of bank excess.

Corbyn's criticisms of Morgan Stanley boss James Gorman's pay and "speculators" in general seem a little out of date. Regulators across Europe have limited bonuses since the financial crisis, and banks have cut remuneration. Average bank CEO pay has fallen, in real terms, by 49 percent since 2006 according to analysts at New Financial. The think tank reckons that pay as a proportion of revenues at investment banks declined by 9 percentage points to 37 percent over the decade to 2016.

Still, bankers are an easy target for Corbyn. The fact that CEO salary is still on average $11.4 million a year underlines their stratospheric levels of remuneration before the crisis. True, that's not out of whack with other firms, as Ermotti pointed out with a jibe at "big tech" companies. But neither Google nor Amazon took state capital; nor do they benefit from an implicit government guarantee that keeps their funding costs low. Shareholders have also suffered. Over the past decade European banks' total shareholder returns, including reinvested dividends, have averaged minus 39 percent compared with a positive 48 percent for the STOXX Europe 600 index.

Bankers might dismiss Corbyn's broadside as hyperbole. There is nothing in Labour's recent manifesto that explicitly targets banks. That would be naive. The risk is that the UK Conservative government now feels that it has to match Corbyn's invective. And there's plenty a Labour government could do to attack banks, such as imposing transaction taxes or nationalization. That would hit Britain hard, if it meant bankers left for more business-friendly countries, but shareholders would be wise to act first.

The author is Christopher Thompson, a Reuters Breakingviews columnist. The article was first published on Reuters Breakingviews.

Posted in: INSIDER'S EYE

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