NEW POLL: what should be done about bankers’ bonuses?

by Stephen Tall on February 10, 2009

One thing you absolutely cannot accuse the Lib Dem leadership of – going soft on the pay bonuses for executives at those banks which have been re-capitalised by the government. Here’s Vince Cable, Lib Dem deputy leader:

The Government must freeze all bonus payments for employees of semi-nationalised banks and ensure that the pay details of those earning over £100,000 a year are published.”

And Nick Clegg has also strongly criticised Labour for not taking a tough line, instead suggesting bankers ‘ask themselves whether accepting these payments is the right thing to do’, and setting up a review:

You don’t need a review to answer the simple question: should senior bankers receive bonuses? The answer is no.”

The contrary view was put by a leader article in yesterday’s Times:

… the demand by Nick Clegg, the Liberal Democrat leader, that no bank executive ever receive a cash bonus has no merit, being in effect a demand that only low-achievers consider senior posts in banking.

It went on to argue:

Bonus payments are a standard part of senior bankers’ remuneration. They also extend to quite junior employees. Bankers are typically paid a basic salary and an annual bonus that is intended to reflect firm-wide profitability and individual contribution. With more junior staff, the aim is to reward effort, progress and potential. In normal times, banking is a competitive business with high staff turnover. This increases pressure on banks to pay substantial bonuses to star traders and other direct revenue-generators.

There is nothing inherently wrong with that system, or with the notion of high rewards for generating profits. The Government is right to seek to limit the cost to the taxpayer of rescuing the banking system, but imposing a ceiling on bankers’ pay would be the wrong approach. Governments have no legitimate interest in setting the rent of ability in the marketplace, even supposing they knew how to do so.

And of course as Alex Foster noted recently on LDV, the law of unintended consequences applies to bonus clampdowns, with New York City and New York State facing a severe downturn in tax revenues.

So what do you, LDV’s readers, think should the government do about bonuses in those banks recapitalised with taxpayers’ money? Here are your options:

> No bonuses should be paid at all
> There should be a government-enforced cap on bonuses
> Payment of bonuses should remain at the banks’ discretion
> Don’t know

Feel free to explain your reasoning in the thread below…