Bonus debate is heading out of control
THE row over City bonuses shows no signs of petering out, certainly if the last 24 hours is anything to go by.
Yesterday the focus of everybody’s attention was Bob Diamond’s BarCap and its £30m offer to hire Todd Edgar, a commodities trader, and four other members of his team.
Edgar and his colleagues left rival JP Morgan a couple of weeks ago and there were reports – denied by some – that the traders’ former employer has complained to the Financial Services Authority (FSA) that it transgressed its new code on City remuneration.
BarCap is not amused by the suggestion it has “spat in the face of the regulator” and contends that it is keeping the authorities fully informed about all its ambitious hiring moves.
But the timing of the row is not propitious.
All of the talk about bonuses has been too much for shadow chancellor George Osborne, who is determined to outdo his political opponents in being tough on the banks.
Tough on the City, tough on the causes of the credit crunch, seems to be Osborne’s pre-election mantra, though there must be a doubt he would continue with his anti-banker approach when, as seems likely, the Conservatives get into power.
Says Osborne: “These banks need to live in the real world, where the country’s in a deep recession, and where the taxpayer has spent billions of pounds, not just bailing out some failed banks, but also underpinning the rest of the banking system.”.
What would Osborne do to remedy the situation? Would he ban the City’s golden hellos? Would he ban bonuses? Would he ban guaranteed bonuses, currently being offered to some? I think not, unless he wants a City revolt on his hands.
City PM editor Allister Heath recently wrote that any individual who creates wealth for his employer in a legal, honest and sustainable manner (in other words, that his work doesn’t endanger his firm or the financial system) is entitled to be paid as much as he is able to negotiate with his employer.
“I have no problem with somebody who makes $50m trading equities in a fair manner for his firm and is then paid $10m,” he wrote.
“However, anybody who has lost money should get nothing and be fired; guaranteed bonuses are meaningless and should be phased out. Deferred compensation schemes would discourage certain forms of short-termism (such as investing in mortgage debt which eventually turns out worthless) but continue to reward genuine success.”
That seems a sensible way forward to me, rather than reaching out in a knee-jerk fashion towards some sort of legislative solution, which becomes more likely as long as investment banks fall out with each other.
Setting up a High Pay Commission to look at the evidence as suggested yesterday by think-tank Compass, might also throw some light on the issue.
The government, which appears hamstrung, now seems to be in danger of opting for legislation it hopes will put a stop to the headlines suggesting it is being too soft on the City. There is a real fear this is spinning out of control.
• Allister Heath is away