Sunday, February 15, 2009

Brown under siege as Congress caps bankers' bonuses.

The vast majority of us do our jobs for our salaries and can be expected to be fired if we do not come up to scratch. Only in the banking sector do people expect bonuses if they do the job for which they are being paid. And, in the top echelons of the banking sector, they are being paid very well indeed.

With the recent bailout, public anger over this practice has forced Barack Obama to cap the bonuses paid to top executives; and the fact that Obama has acted in this way means that Gordon Brown will now be under pressure to follow suit.

Gordon Brown was under rising pressure to clamp down on the City's bonus culture last night after the US Congress agreed to drastic curbs capping senior bankers' bonuses at a third of their salary.

The measures, which are expected to be signed into law by President Barack Obama this week, would apply to dozens of staff at American banks bailed out by the taxpayer and could cost Wall Street's wealthiest millions. Cash bonuses would be banned in favour of long-term share options, with the restrictions extending beyond a handful of top executives to senior brokers and traders.

The measures go further than the White House wanted, after Congress significantly toughened the fiscal stimulus package it passed late last week. Obama had originally planned only to cap salaries and his new treasury secretary, Tim Geithner, had lobbied against the draconian new measures. But they will be seen as reflecting growing public anger.

Brown has so far only said that people should not be rewarded for failure, which is his way of avoiding bankers who have lost their company money from receiving bonuses, but he has not addressed the overall subject of the bonus culture.

RBS is paying out £1bn in bonuses for 2008 - the year it made the biggest loss in British corporate history, at an estimated £28bn - while ousted HBOS directors received up to £4.5m, as well as tens of millions of pounds in pension entitlements. Eric Daniels, chief executive of the merged Lloyds-HBOS, waived his most recent bonus, but is entitled to nearly £1m in basic pay, plus a £1.8m bonus and benefits such as school fees for his son.

Brown has opted, so far, to take the route which is inarguable; you shouldn't get a bonus if you lost your company money. You especially shouldn't get a bonus if your company is now only surviving because of money which you have had to borrow from the public purse.

However, public anger over this issue is rising and, with Obama addressing this in the states, it will only be a matter of time before Brown is forced to do the same.

I watched Question Time on playback TV last night and the Labour representative was being battered, clinging to his line that failure must not be rewarded whilst it was obvious that the audience wanted to see an end to this practice altogether. And it was galling to watch the Tories pretend that, they too, shared the audiences anger. Suddenly, the Tories are presenting themselves as the friend of the common man and Labour find themselves defending the worst practices of the city. The world appeared, momentarily, upside down.

Critics argue that the City bonus culture has spread to the public sector, with chief constables, senior NHS executives, local government chiefs and others all now routinely receiving bonuses for meeting targets that were once considered part of the job.

The anger of the Question Time audience appeared to be focused on the fact that these bonuses only seem to apply to people at the very top of the food chain, people who are already being very well paid for their services. It would be unthinkable, for example, to give your cleaner a bonus simply for doing her job, so why are these massive bonuses being paid to people who already receive seven figure salaries?

The recent financial crisis, and especially the fact that public money is being used to bail these banks out, has exposed a culture of greed which most people appear to find abhorrent.
Public anger was now greater than ever. With regulators the only real casualty of the week, and the banks seemingly unmoved, respondents to the IoS poll conducted by ComRes were as furious as mere statistics can ever suggest. Asked if there should be a legal limit on pay in bailed-out banks, 84 per cent agreed, and 82 per cent thought that senior executives should repay bonuses.
I suppose the bankers got away with this as long as public money was not needed to finance what they were doing. But, now that public money is involved, the public appear to be insisting that this practice must stop. Brown will be a fool if he allows the Tories to portray themselves as the party willing to curb the city's worst excesses and himself to be cast as the defender of a practice which most of us find distasteful.

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