Washington: It is raining money again on many top US and EU bank executives, less than three years after taxpayers worldwide rescued the banking industry from the worst financial crisis in decades.
Government responses to this vary from country to country. Britain and to a lesser extent the rest of the EU are embracing pay curbs, while the US is doing little.
These divergent approaches undermine pledges of global cooperation on reforming bank oversight, but the likelihood of changing national traditions on the issue seems slim.
While Europeans are more willing to impose limits on pay, Americans appear to be inured to sky-high banker compensation in a period of widening US income disparity. The issue is hardly registering on Capitol Hill or in opinion polls.
“I think that will continue” to be the case, said Simon Johnson, a business professor at Massachusetts Institute of Technology and author of “13 Bankers,” a book on the crisis.
For years now, bankers have made fortunes dwarfing other industries, especially in the United States, and nothing seems to interrupt that pattern for very long.
“The pay spigot is wide open again at many banks that were at the center of the financial crisis three years ago,” said Amy Borrus, spokeswoman for the Council of Institutional Investors, a group that represents pension funds.
While the good times are rolling again in the C-suite, that does not necessarily mean profits are robust. They are at some banks, and at other banks they are not.
Never mind that. In banking, pay and performance are often only loosely linked. So after a short, grudgingly remorseful spell of austerity, bank bosses are back in the chips.
Credit Suisse boss Brady Dougan took $14 million in pay in 2010, despite the Swiss-based bank’s shares losing a quarter of their value, as reported on Thursday.
The structure of pay packages has shifted, with more coming in deferred form, bonuses down and salaries up, but there can be a stark disconnect between pay and results.
Goldman Sachs tripled CEO Lloyd Blankfein’s salary to $2 million in 2010 and awarded him $12.6 million in restricted stock, though the bank’s profits fell 38%.
Incentives mismatch endures
Despite decades of attempts to align the interests of bank managers and shareholders, who benefit when banks are profitable, only limited progress is evident.
Compared with others in the financial arena, such as hedge fund managers, bank CEOs are a breed apart, said Nicolas Veron, senior fellow at Brussels-based think tank Bruegel.
“The thing is that all bank CEOs make a lot of money, while only the successful hedge fund managers make immense amounts ... They’re basically paid on performance,” he said.
“In terms of alignment of incentives between shareholders and bank CEOs on the one hand, and between investors and hedge fund managers on the other hand, at this point I see less of a problem ... in the hedge fund case.”
Bonus curbs took effect in the 27-state European Union in February, exceeding pay principles agreed to by the Group of 20 leading nations. The United States has done less to rein in banker pay, though efforts are still under way.
Actions have been taken in Asia to meet the G-20 principles, but go no further than that. Global divergence on the pay issue and British leadership on restraining pay are causing some grumbling in the City of London.
British bankers suspect that “the UK government may be less profoundly committed to the City of London than has been the case in the past,” Veron said.
Grumbling probably will not lead to a large-scale migration of banking activity from the City to non-EU money centers, Veron said.