I read today that the latest knee-jerk policy suggestion to come from the banking crisis is the idea of forcing banks to disclose the number of staff the bank employees who earn a million pounds a year or more.
Now that my initial objection based entirely on ‘this doesn’t sound right’ (Governments “forcing” always sets alarm bells ringing for me) has passed I’ve been able to afford this proposal more rational, relaxed and objective consideration and this process has led me to the following conclusions, in bullet as I’m conscious few people read paragraphs nowadays.
- The number of £1m + earners (£1M+Es) in a bank will be falsely regarded as somehow indicative of a banks propensity for risk-taking or remunerating too liberally: as though this very high-level figures would somehow be meaningful – whereas in fact this will be a media-friendly figure, it is also very easily misunderstood and thoroughly hollow.
E.g. If Bank-A for example were to be forced to disclose that they have say 100 £1M+Es, and another, Bank-B were to disclose that they had 75, Bank-C forced to show that they had 50+ – whereas we might quickly establish a ‘league table’ for Banks A-C of £1M+Es in banks, this information has no intrinsic value whatsoever.
- Whereas I suspect it likely that the general public and media (nowadays so quick to be against high-remuneration for those of us in the financial sector) would enjoy a few days or weeks of media-fuelled faux-anger with nasty Bank-A for supporting more £1M+Es than either Bank-B or C, there would be little benefit to a regulator, consumer or the industry as a whole.
- For too many people the idea of earning in excess of £1 million a year is incomprehensible – it’s not an amount that can be sensibly compared or related to and so inevitably triggers resentment.
- This sort of high-level statistic wouldn’t help anyone to govern banks since it wouldn’t demonstrate a bank’s tendency for risk-taking (or anything else) – it doesn’t explain the reasons or considerations behind the pay packages and isn’t easily (if indeed at all) comparable: though it is clearly designed to be crudely compared that would never be possible, accurate or beneficial. Bank-A / Bank-B may be bigger / smaller in very many different ways: one may have more staff but not more customers or more profit but less revenue, healthier margins but lower capital reserves or a less diverse portfolio.
- The figure wouldn’t even help see how much is spent per bank on the £1M+Es since although we’d know that Bank-A spends at least £100m year on remuneration for the £1M+Es and Bank-B spends at least £75m a year, we don’t know which bank spends more (not that even knowing that would be particularly useful to my mind) since Bank-B may be spending £500m a year compared to Bank-A spending just £102m.
- Even if it were possible to come up with some sort of complex formula which normalised the £1M+E count figures from bank to bank so that they were comparable – what would they propose to do about a bank which had more than an average (?) proportion of £1M+Es?
…Are we going to set arbitrary caps on the number of £1M+Es a bank may pay?
…Perhaps insist that the bank remove say 50 of it’s top earners (i.e, decapitating its leadership and making people unemployed on a whim?) - As ever, the great threat to Britain’s financial sector – people will just go elsewhere. If you effectively disincentivise higher earning goals in a bank or any other organisation, unilaterally as one country, you just encourage talent to move abroad, taking with business with them.
- The amount that a bank pays a handful of individuals is fairly irrelevant, in the scheme of things – it’s perhaps the easiest thing to wave a finger at but that’s not what’s needed now.
Ultimately, making public a high level statistic in this manner only invites misunderstanding, mass-hysteria and potentially unfair and unjustified damage to reputation for a bank without providing a shred of tangible or useful data. Decisions about remuneration require case-by-case, low-level and in-depth deliberations – this does not lend itself to high-level comparison and would need to be done by professionals – people with knowledge and understanding of what is a complex calculation in a highly advanced market. Another Sir Fred-Goodwin style public hate campaign on a larger scale should be avoided.