Ordinarily, I do not concern myself with the way that private companies remunerate their staff. If a jockey can make a horse run fast, or a rock star can fill a stadium, it has always seemed fair to me that they should take home a large share of the proceeds.
Occasionally, I have heard people talk with disgust about the salaries of footballers and about how unfair it is that someone can get paid so much for kicking a leather ball, compared to the amount paid to a teacher or a nurse. Unsurprisingly, these arguments usually come from representatives of those fine and noble professions. I need not trouble myself with discussing this sort of unhidden jealousy.
If they insist that they are not jealous, one can always ask if they would prefer the money to go to Rupert Murdoch or another of his ilk.
And then, there are contemporary bankers.
For a long time, ordinary people have been complaining about the size of their pay packets. They are not like the jockey, or the rock star, or the footballer. As executives, they have more control over their pay. They are like a shop manager with his hand in the till. A fine analogy, we may say. Like the shop owner whose manager is robbing from the store, the owners of these companies (the shareholders) need to take control of the executives and stop the theft. It is their responsibility to make sure that bonuses are paid at the levels where they achieve their purpose (to attract and retain the services of the most competent). I never saw any reason why I should concern myself with or be scandalised by the bonuses paid to executives by companies whose shares I did not own.
In this era of government handouts, the issue of bonuses become a lot more fiery. When the government owns large proportions of some banks, we all become shareholders. It becomes our responsibility that the bonuses are paid out effectively.
People are right to be shocked by bankers pocketing government money intended to prime the lending markets. Such behaviour seems criminal. Governments have to do something to avoid this sort of thing, and are introducing caps.
The argument against the caps that has sprung up from those of a classical liberal bent (Oh! How I loathe to have to qualify the word “liberal” with “classical”. Damn you, American socialists! At least have the conviction to describe yourselves honestly.) is that the best bankers will leave the failing banks (in which we are all now shareholders) in order to seek higher bonuses in banks that have not received state funds. A divided banking industry where one half consists of whiz kids in privately owned banks, and the other consists of venal parasites in failing banks propped up by ever increasing government handouts sounds like something out of “Atlas Shrugged”, and it’s in all of our interest to avoid that.
Can we avoid such an outcome? Possibly. Imposing blanket caps (no cash bonuses over fixed amounts for example) runs the risks of causing the flight of any talent left at the top of the banking industry. A better approach might be for all bonuses to be put before all the shareholders of the banks for their approval. This should be the way that large bonuses are always handled anyway. Bonuses from banks that have been part nationalised will obviously have to be scrutinised by the government, which is a major shareholder, as publicly as possible. Other shareholders should have fair voting rights as well.
Whether such a scheme is workable is questionable. It certainly lacks the headline grabbing populism of a fixed cap.
Of course, the argument that the “talent” will go elsewhere presupposes that there are banks ready to pay them and that there is a shortage of top flight bankers looking for work. At this point, I doubt that either of those conditions are true.