Well, yes, this would be a good idea about bankers\’ pay

The rules, which will be the toughest in the world, will curb bonuses to their size of their salaries, or two times pay if 50pc of shareholders agree in a vote.

That\’s the current proposal.

But the City’s big fear was raised as Spain’s finance minister, Luis de Guindos, called for bank salaries to be restricted by law too.

“We are very much in favour of the limitation on variable remuneration but that’s not the only issue,” he said. “The question is also the entirety of remuneration, which is sometimes more important. And Spain’s position is that shareholders’ meetings must have a major involvement and should decide the overall remuneration of bankers.”

And that\’s the good one.

That shareholders, the owners of the company, should have the ultimate control over the amounts paid to their employees is just fine. Excellent even.

The problem is of course that it\’s entirely contrary to the current proposal. If shareholders are to be the arbiters and they decide to pay large bonuses then that should be just fine: for if shareholders are to be the arbiters then they should indeed be such, without the law then imposing requirements upon them.

It\’s an either or: ignorant politicians deciding these things (and none of the EU politicians working on this have any experiuence at all of high finance) or shareholders, the people deciding what to do with their own property?

15 thoughts on “Well, yes, this would be a good idea about bankers\’ pay”

  1. This is the unsquare-able circle you get into when you start believing the piffle-tastic paradigm that finance in some way “drives” the economy. All you can think of doing to “drive” the economy is to keep shovelling more money into the metaphorical boiler, and then you see the recipients with their hookers and cocaine and so on, and you think, that’s not right, and you try to find some way to stop people who you’ve given the sackloads of money to from spending it.

  2. “And Spain’s position is that shareholders’ meetings must have a major involvement and should decide the overall remuneration of bankers.” ”

    Big deal. So what changes? Nothing to stop a shareholder in a bank going to the shareholders’ meeting & tabling a motion on employees’ pay.

  3. Actually, here’s a suggestion. Pass a law requiring banks to insure themselves on the free market against collapse. One would guess that the resultant premiums would soak up an awful lot of bonuses. And maybe even inspire some caution.

  4. Oh, I can just see the shareholders meetings voting on the bonuses for each employee. Even if you are talking about the 1% who actually get the serious bonuses, that’s a lot of voting.

    Hence the sense in the Swiss suggestion – make them vote for the people in ‘control’. And then let them control the remuneration for the people at the lower levels. Sort of like letting the managers manage.

    But I’m sure IanB will have some alternative.

  5. The difficulty is, SE,shares in banks tend to be held, to a large extent, by the institutions. That s investment trusts, insurance companies, pension funds…. Which are essentially, the same sort of people who run the banks. Very often exactly the same people, in different hats. You see the problem.

  6. Well yes, I have. Let’s have a free market banking system, then they can do whatever they like and pay whatever they like, and if they’re unwise, end up down the Job Centre like everybody else.

    You know, that free market thing. Apparently it’s quite good. So I’ve heard.

  7. But, Ian, the punter really doesn’t much like the free market when it comes to his dosh. It works for the market when the bank, insurance, pension fund he’s put all his money in goes phut. Plenty more banks, insco’s, pension fund managers around. But he’s personally potless.

  8. BIS-

    Fair enough. But then, it’s inconsistent to argue against banking regulation in general, since you’ve no longer got a free market system. You’re obviously going to get excess[1] profits in a system with privatised profits and public liabilities. So, it’s not unreasonable to regulate them down again.

    Give a gambler a suitcase full of dosh and tell him that if he loses it, you’ll just give him another one, well, he’s going to bet on any old shit isn’t he? What’s to lose?

    [1] Defined as “above the level the market would set them at”.

  9. Let’s have a free market banking system

    &

    Pass a law requiring banks to insure themselves on the free market against collapse

    Which, Ian? No other type of company is required to insure itself against collapse.

  10. What?

    You’re obviously going to get excess[1] profits …

    [1] Defined as “above the level the market would set them at”.

    The market sets profit rates now? Err, no, that’s not the way it works.

  11. Which, Ian? No other type of company is required to insure itself against collapse.

    Sorry if I’m not being clear enough for you, I’m discussing various alternatives, so you shouldn’t expect them to be compatible. You know, “we could go to the chinese, or the chippie, or cook at home” kind of thing. Forced insurance was an option for the current semi-nationalised/corporatist system, or we could have a free market instead.

    The market sets profit rates now? Err, no, that’s not the way it works.

    I am literally agog as I wait for your next post explaining what the hell does set profits then, in a free market, if not the free market? The price of corn? The value of the proletarian’s labour surplus?

    Really. Can’t wait.

  12. Bearing in mind Ian was talking about free markets at that point “No other type of company is required to insure itself against collapse.” isn’t exactly true. Market forces require a lot of companies to do exactly that. Why one sees those ‘independently guaranteed’ clauses in the sales blurb.

  13. The problem with this suggestion is the slippery slope. Soon the politicians will want to control the pay of all employees and to shareholders as well of course

  14. Emil – They already want to, it’s more a matter of what they can get away with. To an extent they already do, through the minimum wage. Attempts to cap executive pay and to enforce a “Living Wage” are simply two sides of the same coin.

  15. Yes, let’s have the shareholders decide. The actual shareholders (the beneficial owners) that is, of course, not their trustees.

    Require any bonus to have a majority vote of shares issued, voted by secret (postal) ballot with no proxies and the votes cast by the actual beneficial owners, so for shares owned by a pension fund, the investors in that fund, for shares owned by the state, every citizen would hold an equal fraction, etc.

    The idea that someone managing my investments also gains a block vote over the shareholding they may acquire on my behalf is one of the most pernicious of the agent-principal problems.

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