Just how much money is the Chief Executive of a large bank worth? Eric Daniels of the new Lloyds Banking Group gets £1 million as his annual salary, while Stephen Hester of the Royal Bank gets £1.2 million per annum. In addtion of course there are very substantial bonuses on offer. In the case of Stephen Hester these include a £2 million non-cash bonus, and nearly £6.4 million of long-term share and stock options if the bank's shares rise to 70p per share (currently 37p per share). Top executives at Goldman Sachs in both London and New York are also eyeing up obscenely high bonuses. The question has to be asked what exactly do these men, for they are nearly all men, do to justify these obscene earnings?
I'm not sure that earning is the right word for the amounts of money we are talking about here. Let us leave aside the bonuses for a moment, what justifies the basic salaries, which in the case of Lloyds and RBS amount to £1 million plus? There seem to be two basic arguments advanced in favour of these high salaries. The first is that the chief executives and other top managers have a very demanding job and that it is a very tough market out there. The othe justification is that banks and other financial institutions work in a very competitive market - if they didn't pay the "going rate", then their top managers would be snatched up by the oppostion. Both arguments are pretty much self serving crap.
While running a large bank may be a demanding job, lots of other jobs are very demanding and some involve a degree of personal risk. There are plenty of jobs in the health and education sector, for example, that will be extremely demanding, with far more direct exposure to criticism from the public than running a large bank. Furthermore there never seems to be any financial risk at stake. No matter how catastrophic the mismanagement, the outgoing management never seem to suffer financially. They are in a win-win situation. If the banks do well they make millions of money, if the banks collapse, they still make millions of money. What is demanding about that? There does not appear to be any reward or incentive for managing a sustainable concern. Manipulate the share price and you hit the jackpot. Who cares what the business actually does.
The other argument, that banks work in an internationally competitive market is also absurd. The fact that nearly all top managers are male, reduces the competition quite significantly. As does the fact that most top mangers are white. Given that Asian business schools produce top class graduates year after year and most of them speak English, why are most of our top managers not Asian? If there was real competition then most Asian managers from India, China, Taiwan etc would work for a lot less than £1 million. And probably do at least as good a job. The reality of course is that there is no competitive market for top managers. The salaries and total renumeration packages are agreed by the boards with their non-executive members who are often executives in other companies and the packages are then sanctioned by various committees made up of top managers from other companies. Since they are all in the same game they are most unlikely to recommend paying less. This is about as closed a shop as you can get.
Another fundamental flaw which affects both arguments is that the continual pursuit of obscene amounts of money is not what motivates the overwhelming majority of people. This is not to suggest that most people don't want a decent income, but vast sums of money are not what motivates people. All the evidence points to the opposite. To restrict ourselves to banking for the moment, the majority of people working in banks are the relatively lowly paid counter staff. The tellers of old, the people who provide the front line service, the public face of the bank. None of them earn a great deal - in the case of the Royal Bank, counter staff probably earn about 1/80 (one eightieth) of Stephen Hester's basic salary. Yet these lowly paid bank staff turn up every day, work away under great stress and always have to put on a polite and cheery face to the public, however grumpy they - the public - may be. What motivates them? Not their measly salary - important though that is. They simply want to do a good job and support their colleagues in their branch. Sure, they would love to get paid more, probably a lot more, but they don't wait until they get a decent salary before they put in a decent stint at work. And what about our chief executives? Without his £1.2 million basic annual salary are we to believe that Stephen Hester would not turn up for work? Or if he did turn up that without the £1.2 million he wouldn't work that hard. He would only be a half hearted chief executive? Before heading RBS, Stephen Hester was the chief executive at British Land and only earned half of what he now gets at RBS. Are we to believe that Stephen Hester only worked half as much then as he does now? A pretty preposterous notion.
Two further points. People who make a fortune starting from scratch, people such as Bill Gates or Richard Branson, start off by pursuing a dream or an idea. Money is certainly a factor, but rarely if ever the main motivating factor. They simply want to make something or provide some new kind of service. If it works well they may then go on to make a fortune. But, millions and millions of people go down the same route year after year and never make anything. Some only make losses and end up bankrupt. Nevertheless they continue and other people keep on trying. Further evidence that obscene levels of remuneration are not needed. The final point is the vast army of unpaid workers - all those volunteers who freely give of their time and expertise to help others. This is what makes the world go round. Most of the current chief executives, not just of banks, but of all companies would continue to do their job and give of their best for much, much less in the way of salary, providing it happened to everyone. Those who are only motivated by money, should not be in charge of anything.
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