The View | Bankers living in a fantasy world when it comes to pay expectations
Governments want banks to behave more like predictable service companies
These post global financial crisis times represent the years of maximum torque and worry for bankers – the realisation that your career was a mistake and from now on it is all a sliding scale of compromise and disappointment.
Bankers are feeling the pain of changes to their remuneration as US regulators and shareholders continue to vilify them as soldiers of Satan – overpaid egomaniacs whose risk-taking culture and entire scope of activities need to be rolled back lest the world suffer another near collapse reminiscent of end days.
Last week, six US regulators – the National Credit Union Administration, Securities Exchange Commission, Federal Deposit Insurance Corporation, Federal Reserve, Office of the Comptroller of the Currency and Federal Housing Finance Agencies – proposed further restrictions on Wall Street pay.
At every failed bank you can trace the problems back to an arrogant leader who lost his sense of risk sanity
They mandated that United States’ largest banks and financial institutions withhold executives’ bonus pay for four years, a one-year extension from the previous scheme. A minimum period of seven years will also be demanded from the biggest firms to “claw back” bonuses if it turns out an executive’s actions “hurt the institution” (whatever that means). Authorities seem to have concluded that bad bets by financial services firms take longer than three years to materialise.
But the outcome is leading to more onerous changes to the business than just bonus adjustments. Bankers still live in a fantasy world when it comes to their pay expectations. They think smaller bonuses and the risk of clawbacks will eventually be offset by higher salaries. “Making your number”– the amount of savings targeted for their retirement, is becoming an exercise in relativity, because the role of the banker is undergoing irrevocable changes.
Shareholders in Citigroup have also piled into the banker pay battle. Recently, more than a third of votes were cast against its board’s executive pay scheme. The board sought to increase the potential salary package for chief executive Michael Corbat by 27 per cent to US$16.5 million.
Corporate governance advisory groups strongly disagreed with Citigroup’s plan, but it was approved even though 36.4 per cent of votes opposed it. In 2015, the average vote against management regarding pay packages was 8.8 per cent, according to an ISS Corporate Solutions analysis of the 3,000 largest companies in the US. Critics of Citigroup’s pay structure complained that executives were being rewarded generously for underwhelming results.