Two points are missed when ogling at Bob Diamond’s £6.5m bonus as the new Barclays chief executive, 271 times the national average wage. One is that his bonus is by no means the largest – far from it. Several of his colleagues at Barclays raked in much, more more. Two of them, Del Messier and the appropriately named Rich Ricci from the BarCap investment division, took home £33m and £29m respectively via their ‘incentive’ schemes. When their salaries, annual bonuses and other remuneration are all added in, they trousered no less than £47m and £44m.
Others whose pay and bonuses are for the first time revealed via the Merlin Project took home rather less, but still sums far in excess of what most people earn in the whole of their lives – Tom Kalaris on £13.8m, Anthony Jenkins on £8.2m and Robert le Blanc on £6.8m. What is perhaps even more staggering is that the figures disclosed only include executive managers, not traders, many of whom are granted booty that puts even these gargantuan rewards in the shade.
But even that is not the final shocker. The general population not only loathes and despises the bankers for shamelessly paying themselves these vast sums when they caused the catastrophe that has engulfed everyone else, but these are sums which even in a strict business sense uttely defy commercial gravity. Diamond, Del Missier and Ricci were paid these colossal sums, not as a reward for a bumper year, but after 3 distinctly sub-par years. Furthermore, in none of Britain’s other highly profitable industries – oil, IT and pharmaceuticals – are top executives paid at even a fraction of these levels, especially when the financial targets are missed by miles.
Return on equity at Barclays has been a low 7.2%, which is so embarrassing to Barclays that Diamond felt obliged to commit to a target of 13% by 2013. Performance has been so poor that £100 invested in Barclays shares in 2008 has almost halved in value today. In other words the shareholders, the ostensible owners of the bank for whom under the mantra of capitalism so often repeated the management seeks to maximize the value of their investment, took a thumping hit while the managers themselves enriched their own nest beyond the dreams of Croesus. This is not venture capitalism, it’s an old-fashioned rip-off.
There are literally no limits to this fathomless greed if the bankers are left to police themselves. Nor will the Tories do it when, as we now know, they get half their own total funding from the banks. Until the authorities (neither New Labour nor the Tories when both are so heavily compromised) enforce pay systems that meet three conditions – (i) objectively reflect actual corporate performance, (ii) align with remuneration in other sectors, and (iii) are broadly agreed with representatives of other grades throughout the enterprise as well as being consistent with national guidelines set by a Pay Commission – the evils of grotesque inequality will not be addressed.
There is another sense in which these bonuses are undermining our economy. There can be no doubt that much of the money will be spent on importing luxury good (fine wines, sports cars, yachts, etc) which will further add to our balance of trade deficit. Cameron claims to be paying off the `nation’s credit card’ but a balance of trade deficit can only be paid for ultimately by national borrowing. Everytime these bankers spend money on luxurious trivia another school must close or be privatised, hospitals must go under equipped, etc. Cameron is lying about paying off the deficit as long as this goes on. How long before we see ambulance drivers flagging down four by four drivers on the school run to beg for a lift because they ambulance has run out of petrol and they can’t afford more? So much for us all being in this together. The rich are looking after themselves are everybody else’s expense.
It’s incredible to think that only back in January, Bob Diamond said to the Treasury Committee: “We are sensitive, we are listening [to calls for restraint], and there is no lack of effort in recognising the importance of this issue and being responsible [over bonuses]”. He said Barclays had “no intention of paying more in bonuses than is necessary”.
Are the Barclays’ bonuses announced yesterday “necessary”? Do they reflect restraint? Hardly, but my take on it is that if the financial sector is ever going to justify to the public the large bonuses paid to its senior bankers and top performers, then:
(a) those bankers must do something en masse to win public support (eg as per Warren Buffett and Bill Gates with other billionaires);
(b) that initiative should correlate risk to the upside they earn in bonuses because effectively, banks are so big their speculation is underwritten by the taxpayer; and
(c) if David Cameron and the government want economic growth to come from small businesses and investment in new ideas, then my suggestion of an Ideas Fund to which bankers contribute 10% of their bonuses, hits the spot on all 3 counts.
Please read the blog and let me know if you agree and, better still, if you can do anything to help persuade bankers to support the idea: http://www.protectyourideas.com/Blog.aspx