Cut top bankers’ pay massively, says guru
A former aide to David Cameron says that banks which receive taxpayer funds should pay their bosses much less, like civil servants. Can this tackle public disillusionment with our democracy?
‘It is time their pay came out of the stratosphere and back to planet earth.’
Even some in the banking industry agree with the comment made by Francis O’Grady, General Secretary of the Trade Union Congress, in January. Sir David Walker, Chairman of Barclays, said in 2012 there was ‘no doubt’ that bankers were paid too much. A heated public response has been targeted, in particular, at those who received public money to keep them afloat after the 2008 financial crash.
Now an apparently unlikely critic has proposed a radical solution. Steve Hilton, the former director of strategy to David Cameron’s low-regulation government, says that top executives at these bailed-out banks should be paid no more than top civil servants.
Such a measure could mean some bosses taking a pay cut of around 90%. At Lloyds Banking Group, one of those which was bailed out, a ten-strong management team were given £43m of pay and shares under a three-year pay plan in February, £11.5m of which went to the chief executive. The highest-paid civil servants in the country tend to earn between £150,000 and £200,000.
Hilton is concerned that governments are allowing large banks to dominate markets at the expense of their smaller competitors. It’s a small part of the wider argument, made in his new book, More Human, that elites are held to different standards than ordinary people, fuelling disillusionment with democracy among the mass of the population.
To counteract this, banks that receive taxpayers’ money should abide by the same rules as those institutions which are naturally considered part of the public sector. It follows, then, that their executives should be tied to the same pay scales as those at the top of the NHS or a government department. Hilton says that this could be a ‘powerful incentive’ for banks to reform, leading larger banks to split up and allowing smaller ones who challenge orthodox methods to benefit.
Don’t bank on it
Anthony Browne, the chief executive of the British Bankers Association, has warned of ‘catastrophic damage’ to the banking sector if such an idea were to be implemented. The British economy relies heavily upon financial services. If we do not pay executives a competitive rate, they will leave. That will mean losing jobs and lower tax receipts, so we will all lose out.
But bankers’ critics say that this is scaremongering. Government money is ultimately our money, and the amount of it which some executives are taking home is obscene, particularly at a time of austerity. There is a moral case for taking action to make our whole financial system fairer. Giving a small number of top bankers a short, sharp shock would be an important step in that process.
- Should there be limits on how much someone can be paid?
- Do governments have a moral imperative to act to create a more equal society?
- Write a letter to the Chancellor, George Osborne, either encouraging him to adopt Steve Hilton’s idea or reject it.
- Read the BBC link on whether banks can be ethical. Study the four options at the bottom. Prepare a short presentation on which of these you would most like to see adopted by your bank.
Some People Say...
“Greed, for lack of a better word, is good”Gordon Gecko, main character in the film ‘Wall Street'
What do you think?
Q & A
- Who decides how bankers are paid?
- It’s up to the individual bank. Pay is usually set during an appraisal, when managers will weigh up how much value an individual offers the institution and how much they think they can afford to pay them. Top executives will usually be appraised by committee.
- Why pay some of them so much?
- Banks sometimes deal with huge amounts of money, so they consider it essential to get the best executives available. If someone might spot an investment opportunity worth millions of pounds, they could deliver a return on a huge pay packet in one stroke.
- Why did the taxpayer get involved?
- Some bankers made reckless decisions in pursuit of higher profits. In 2008, when this seemed to have driven their banks to the verge of collapse, the government felt it had to step in.
- Low-regulation government
- Cameron and his Chancellor, George Osborne, called for less bank regulation prior to the crash. They have also opposed regulations elsewhere, on issues such as the environment and employment law.
- Was bailed out
- The government bought around £37bn of shares in British banks in October 2008 to ensure that the Royal Bank of Scotland (RBS), Lloyds TSB and HBOS did not go bust. HBOS and Lloyds merged in 2009, after which the government owned 77% of the bank, though its share is now around 20%. The government currently owns 79% of RBS Group.
- Highest-paid civil servants
- The civil servants on the highest pay tend to be those in charge of large organisations. For example Simon Stevens, the chief executive of NHS England, draws a salary of £211,000.
- Counteract this
- Hilton also suggests that competition authorities should be more intrusive, to help smaller banks compete with larger ones. ‘The system ought to be geared to help the insurgents and not to protect the insiders,’ he says. He also believes that similar principles should be applied to the supermarket sector.