Here's the latest from our Highly Placed Professional.
Having ballooned out up till the financial crisis of 2008, it appears that bankers’ total compensation is shrinking, and normalising somewhat with regard to other industries.
Bankers, of course, gradually got used to being paid huge bonuses as if it was their birthright. All too often bonuses were not paid out based on the firm’s long-term profitability, leaving shareholders at a distinct disadvantage. This state of affairs not only encouraged blatant risk taking in trading, but also encouraged senior managers to create empires and reach for the stars. It’s only recently that effective checks and balances for bonus payment deferrals and clawbacks have been instituted by global regulators and lawmakers.
But there’s another more sinister part to almost unlimited remuneration possibilities, and that's when firms and their staff choose to ignore all normal moral strictures in their business dealings and models.
If you aren't on the hook as a shareholder or partner, you not only take lots of risk, but all too often you look for the easiest ways to make a fast buck even if it is at the expense of your clients or investors. The CDO and ABS fiasco, which is still being investigated by the SEC, is full of examples of this kind of abuse. We’re all human and it’s difficult to resist temptation, to paraphrase Oscar Wilde.
I don’t think that the artificial bonus caps contemplated by the EU are the answer, but I do think shareholders should have far better control of the absolute compensation numbers. If every investment bank and investment banker acts like a hedge fund, the damage to society will just be too great. We need a more benign, caring environment in banking. Managers need to curb their greed and start to show some responsibility. As for the rest of us front line troops, we need to be a lot more realistic about the value we bring to society.