How cutting bankers’ bonuses buggers up bankers’ pay
ONE of the odder parts of the furore over the banks, greed, financial crashes and what causes them is this idea that if we cut bankers’ bonuses then everything will be better. The problem with this idea is that everything has more than just the one effect: and those side effects can be worse than the original problem anyone is trying to cure.
As with these caps on bankers’ bonuses:
Hundreds of the highest earners at HSBC could be in line for a bumper pay rise as the lender tries to swerve a new bonus cap from Brussels.
The chairman of HSBC admitted yesterday that it was considering plans to hike salaries for employees to ensure they do not leave for better paid jobs with US or Asian rivals.
Douglas Flint, who received a £2.4 million package last year, said the lender would ‘comply with the law’ but needs to ‘remain competitive’.
There’s a new EU rule that says that bankers cannot get a bonus of more than two times their basic pay. So, what are people doing to make sure that they can meet this new law? They’re raising that basic pay.
Bankers aren’t going to earn any less money as a result of this. however, the risks to the bank have gone up.
For, under the old system, everyone got a salary, yes, and then some vast bonus. But in bad years the bank didn’t have to (and didn’t: if you were in a business that lost money that year then you didn’t get a bonus) pay the bonuses. Now we’ve got much higher salaries and smaller bonuses. Which means that in a bad year the bank still has to pay out those higher salaries.
This all makes the banking system risker, not safer. So, well done to all of those calling for a curb on bankers’ bonuses.