There’s an interesting letter from a Mr Ian Cameron (any relation to Dave?) in this week’s Telegraph. Here, Cameron points out when he was a banker, no bonuses were written into their contracts of employment and that “at no time should individuals, departments or divisions be awarded bonus payments when the holding or group company does not make a profit”.
Is this laughably unrealistic today and in the future?
Not according to an article by Gillian Tett in the Financial Times, which highlights research into Wall Street pay over the past 150 years.
For much of this period, financial-sector pay relative to the rest of the private sector was roughly at parity. This changed to 1.7 times in the run-up to the crash of 1929 and again it hit 1.7 in 2006, just as sub- prime mania was climaxing.
But in a world of technological change and globalisation, you need bright highly skilled bankers right? Wrong. In a splendid de bunking of this nonsense, the researchers point out “the technological development of the past 40 years (with IT in particular) should have disproportionately increased efficiency”, noting that in companies such as Walmart, efficiency has reduced wages.
The researchers calculate that at least half the relative pay jump in the financial sector represents skimming off fees, not innovation.
Tett goes on to argue that recent changes in the remuneration models at the likes of Goldman Sachs, Morgan Stanley and JP Morgan Chase are the first signs that pay could be on a slow-but-sure journey back to historic parity.
I think she is right. There are obviously the high-profile political casualties such as Hester and Goodwin but at the more workaday level, financial companies and their stakeholders are beginning to realise that there is an almost endless supply of bright young graduates who would be only too pleased to learn how to step into the shoes of those who complain they can’t get by on £200k per annum.
Global financial institutions keep their wheels turning by making sure their employees conform to strict routines. They are “worker bees”, not successful financial entrepreneurs. Hence maintaining pay scales at anywhere near 1.7 times the private sector average is, quite simply, unsustainable. Not that the boards of RBS (staff bonus pool of £500m) and Barclays (staff bonus pool last year of £2.7bn) have twigged this yet.
No doubt Simon Walker, director-general of the Institute of Directors, would describe my article as yet another example of “anti-business hysteria”. Deep down he probably knows that many of his FTSE 100 directors also cannot hope to carry on being paid well over the odds for just being “upstairs employees” of their regular-as-clockwork companies.
Modern capitalism needs to be about high rewards for successful entrepreneurs. Those who can do nothing better with their lives than attach themselves to Megacorp will find that the days of megabucks are drawing to a close.
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