The debate over bankers’ pay is back with a vengeance in Britain. In one corner stands UBS Chief Executive Sergio Ermotti, who suggested that criticism of high remuneration is driven by envy. On the other, leader of the opposition Labour party Jeremy Corbyn, who ramped up attacks on bankers after a sell-side analyst criticised his policies. The row shows the enduring costs of bank excess.
Corbyn’s criticisms of Morgan Stanley boss James Gorman’s pay and “speculators” in general seem a little out of date. Regulators across Europe have limited bonuses since the financial crisis, and banks have cut remuneration. Average bank CEO pay has fallen, in real terms, by 49 per cent since 2006 according to analysts at New Financial. The think-tank reckons that pay as a proportion of revenues at investment banks declined by 9 percentage points to 37 per cent over the decade to 2016.
Still, bankers are an easy target for Corbyn. The fact that CEO salary is still on average $11.4 million a year underlines their stratospheric levels of remuneration before the crisis. True, that’s not out of whack with other firms, as Ermotti pointed out with a jibe at “big tech” companies. But neither Google nor Amazon took state capital; nor do they benefit from an implicit government guarantee which keeps their funding costs low.
Shareholders have also suffered. Over the past decade European banks’ total shareholder returns, including reinvested dividends, have averaged minus 39 per cent compared with a positive 48 per cent for the STOXX Europe 600 index. Leave out the crisis years of 2008 and 2009, and banks still only returned 10 per cent, barely a 10th of the broader index.
Bankers might dismiss Corbyn’s broadside as hyperbole. There is nothing in Labour’s recent manifesto which explicitly targets banks. That would be naive. The risk is that the UK Conservative government now feels that it has to match Corbyn’s invective. And there’s plenty a Labour government could do to attack banks, such as imposing transaction taxes or nationalisation. That would hit Britain hard, if it meant bankers left for more business-friendly countries, but shareholders would be wise to act first.