It is not news that big banks have been mugging their shareholders to protect the pay and bonuses of their senior staff. Even so, the scale of the heist remains under-appreciated. So well done, Sir John Cunliffe, a deputy governor of the Bank of England, for putting it in stark terms that even the most pusillanimous non-executive director, or fund manager, can understand.
In the decade before the banking crisis, Cunliffe said, shareholders’ profits averaged 60% of banks’ pay costs; in the UK, the profits figure was even higher at 75%. And now? Instead of 60 cents in every dollar of pay for staff, shareholders got 25 cents last year; and in the UK, the figure was just two pence in every pound paid to staff.
Or try it another way: “UK banks’ return on equity would have been nearly six percentage points higher in 2013 if the ratio of staff costs to the sum of staff costs and shareholders’ profit had been at its 2000-07 average.”
Of course, the statistics are skewed by “one-off” fines and compensation (PPI, Libor-rigging, etc) and the presence of loss-making Royal Bank of Scotland. Yet Cunliffe’s core point is unarguable: the adjustment in pay to an era of lower returns in banking has been “sluggish”. Banks may have to cut their pay bills further, he argued, because regulators will not tolerate the high levels of leverage that reigned in the old days.
Fair enough. But Cunliffe is too polite. If he was minded, he could have taken aim at those bank managements which have overseen such an unequal division of the pie. Or he could have repeated the wise words of Robert Pickering, a former head of JP Morgan Cazenove, who wrote to the FT in April in dismay when Barclays boss Antony Jenkins trotted out the “tired old cliché of the death spiral” to justify paying higher bonuses to his investment bankers in a year when profits fell.
“What is needed is an equally tough and experienced manager who is able to see these threats for what they are and face them down, even at the cost of some short-term disruption,” said Pickering.