Justification of bank bonus payments proceeds apace. Despite having in effect gone bust last year, and being only rescued as a publicly quoted company because the Labour Government was so paranoid about nationalisation, the directors of the Royal Bank of Scotland now wish to set aside £1.5Bn of tax payers’ money for next year’s bonus payments. Their argument is that unless the bonuses are paid, their most talented people will leave and they won’t be able to recruit in this highly competitive field. But it’s been said before that it was precisely these individuals who broke the bank. So why should the tax payer worry if they leave and aren’t replaced?
The RBS board is so determined to pay the bonuses that if the government, shortly to be 84% owners, constrain bonuses too tightly, the directors will all up and leave. Well, should the tax payer worry about that? It would be a mistake to wrest confidence in the fact that there are no more job vacancies in banking than there are in any other field at the moment, markets being glutted with recently jobless individuals.
The big question is ‘what is it that these apparently talented individuals do which justifies the bonus payments?’ Do they do something which requires some unique combination of knowledge, understanding, creative talent and sheer hard work? And in deploying such a skill-set, do they create something of such value as to justify the money?
The standard explanation offered by the bankers themselves is quoted by Sir Sandy Crombie elsewhere on this blog and relates to the competitive market for such individuals and says nothing at all about their valuable contributions to banking processes.
They clearly have little to do with traditional High Street retail banking. Nor can they be much to do with supporting manufacturers and others in the real economy. And it’s unlikely they have much to do with solid old-fashioned insurance. These are all traditional and necessary financial sector activities earning a reasonable return, but not the million pound bonuses. It’s strange indeed that the bonus recipients’ activities are not properly explained so the payments they receive might be understood and perhaps forgiven.
The ordinary tax payer, who has supported and now largely employs these people, should exercise the right to know what it is they do which justifies the money. Until that is made clear the popular belief will remain that they don’t do a great deal of any value. It is supposed they buy and sell shares, options, futures and deliberately complicated derivatives of all kinds. And it is presumed that to do it effectively, ie to make money from it, they may well need to be sharp, smart and lively. But the man in the street also understands that when the market is rising, as it has since it bottomed out last year, it would be quite difficult not to make a profit; and when the market collapses, then, unless the traders are smart, they may well take their company to the brink.
If the whole business was stopped tomorrow, would it matter? It produces nothing of real value and has been described as “socially useless”. There might well be a painful readjustment and no doubt London would lose a good few jobs. But in the end, would the world be any worse off? Or would it be a better place, without these divisive bonuses and the individuals who claim them to be justified?