Robert Peston, the BBC's Business Editor, offered us this interesting post last week in which he quoted Sir Philip Hampton (Chairman of the Royal Bank of Scotland) saying that:
"This explosive growth in financial services meant that thousands of people, arguably tens of thousands of people, are extraordinarily highly paid. The most peculiar thing about it all, actually, if you look at the last ten years of massive increases in pay is that the performance for shareholders has been pretty disastrous really across most banks. Some of them have gone out of business altogether and most banks have had a relatively poor performance for shareholders"
The BBC News report can be seen here.
Peston seems to be arguing that pay rates for members of the Financial Services industry have behaved broadly like pay rates for Premiership footballers. The outstanding members of the industry have earned that sort of levels of remuneration. However these levels of pay have subsequently been followed by the industry as a whole, meaning that many are now substantially overpaid given their relative performance.
How then can we encourage a culture of responsibility among the bankers? This would be worthwhile - we don't want to encourage a mentality of free and easy access to reserves of money among this class (ultimately). The problem comes in how to get one of the banks to take the first step. Why should you offer to pay your staff less when they can do the same work for a different bank and get the normal rate of pay?
Well here the Government may have to go back on its basic ideology and simply enforce a cap upon salaries at the banks it owns. In essence, introduce performance related pay to be decided upon in each case by an independent committee attached to each bank in which the state has a majority ownership.
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