Jake's View

Don't blame the fat cats. Trail of cream leads back to you

PUBLISHED : Sunday, 10 March, 2013, 12:00am
UPDATED : Sunday, 10 March, 2013, 2:52am

Sickened by years of financial crises and reports of huge salaries and bonuses for the executives and bankers they say plunged the global economy into chaos, governments and voters around the world are moving to put the fat cats on a pay diet.

SCMP, March 8

Let's put some perspective on this howl of outrage. HSBC chief executive Stuart Gulliver, for instance, got total compensation last year of US$14.1 million or 0.068 per cent of the bank's pre-tax earnings of US$20.6 billion.

Count me among those people who wonder if he was actually worth it. I think executives of institutionalised corporations long past the entrepreneurial stage generally overrate their own importance. Entrenched interests and long-standing corporate practices have much more to do with how such big beasts are run.

But I challenge anyone to count in hard cash just how much his or her notion of the excess made a difference to living standards of HSBC depositors or shareholders.

HSBC is an institutionally held stock with hundreds of millions of end beneficiaries. If institutional investors really thought their funds affected, they would club together to force pay cuts or sell the stock.

I have seen some of them take umbrage with the bank. The last time the message was that HSBC should focus more on core businesses and less on being the biggest bank in the world. The share price tumbled, too. I have never seen it happen because of executive pay.

My message here is simple. If you are the sort of voter who wants to "put the fat cats on a pay diet" then buy some shares and vote. Small as your voice will be, it will still be louder than in any presidential election.

I think the biggest objection many people have to the levels of executive pay is a moral rather than a practical one. They are not personally interested. They are just offended that others are given the means to live so high.

I am not so sure, however, of the high living. Most senior executives don't have the time for it. They work long hours, are constantly rushing somewhere, and on vacations they rarely have enough time to wind down before it's time to wind up again.

Big home in a quiet leafy district? Yes. Beautiful seashore holiday house? Yes. Fancy car, fancy boat, fancy club, all of these, too. But, add them all up and the largest bulk of the pay is still salted away as investment, where it helps provide the capital for goods and services from which all of society benefits. Few senior executives live as high as they earn.

The moral complaint has another angle, however. It is that "executives and bankers ... plunged the global economy into chaos". This is a big charge and assumes a wide definition of chaos. Does it hold true?

If so, and if culprits there must be, I have alternative ones. Try the European Union for devising a currency without a proper backing of monetary discipline, or the US Federal Reserve Board for attempting to stave off a recession that the US economy actually wants to enter. You might also indict US politicians for stimulating mortgage financing past any level of prudence.

More than this, blame the general government practice these days of bailing out financial institutions. True, it means that you don't have to worry whether you'll get your money back if your bank goes bust. You will indeed get it back.

It also means you don't have to worry where you put your cash. Any implicitly guaranteed institution will do, even ones that pay above-average returns by taking wild risks thanks to unscrupulous executives who know the tricks. Is it really surprising that such people give themselves big pay awards? They are probably worth it in a financial system that tries to guarantee risk away.

And if you want to know who is most to blame for these side effects of government intervention, look in the mirror.