The public outrage against executive bonuses in the financial industry has been fueled again as the Wall Street bankers collect their biggest payouts in history for 2009. It’s understandable. And the industry have to accept tighter regulations, and the mangers and brokers have to accept pay cuts, editor Magne Lerø argues in this blog post.
“It is necessary to have better control with executive pay. The voters demand it. Independent economists recommends it.”
(Article in English, link to original post in Norwegian)
Bank bonuses are skyrocketing again, and now the governments tax whip comes down. The financial industry needs to accept tighter regulations, and the managers and brokers have to accept the fact that they will earn less.
The economic crisis doesn’t seem to have had any impact on the collective greed among the money movers in the financial industry.
The large Swedish bank, SEB, has set aside more money for bonuses than the bank managed to earn last year, Aftenposten reports.
In 2008, the bank earned 10 billion. The result for 2009 is expected to be approx. SEK 1.5 billion. Svenska Dagbladet has revealed that they have set aside 1.8 billion for bonuses.
Nordea has allocated 2.3 billion for bonuses. The Swedish Minister of Finance, Anders Borg, says the banks’ bonus policy is “very provocative”.
But what should he do?
Bonuses are the result of employment contracts with managers and brokers. When the government gave emergency help to banks, they could claim that no bonus should be paid that year.
But there were no agreement that this would apply forever.
“A deal is a deal,” the managers and brokers says. The executives at Norsk Hydro said the same in the great strife that ravaged the company’s stock option system in Norway three years ago. There was an almost unanimous public claim that they should give up their stock options.
And as CEO Eivind Reiten pointed out; they chose to give up their options that they had legal rights to, and had a total value of tens of million.s
The state can not dictate the salary conditions in the private sector. But they can create special rules for the financial industry and use the tax whip.
The European Commission has made recommendations to ensure that the bonus promotes long-term perspective and not be a reward for taking short-term risk. Sweden has now made that the EU has recommended.
We’ll see how that turns out.
In the UK, they introduced an extra tax on bonuses. There has been much fuss. Some critics believe that London’s financial hub is threatened. In the United States president Barack Obama consider to introduce a new bonus tax for the employees of the financial firms.
There it is no safe bonus heaven.
Barack Obama has said he does not accept the wage level in the financial sector. In this case, he has the peoples backing. A few weeks ago he asked the banks to lend more money to small businesses. To restart Christmases in the U.S. economy, capital needs to be made available to the business.
Nicolas Sarkozy of France and Angela Merkel in Germany is also leading a fight against soaring executive pay and bonuses.
It is necessary to have better control with executive pay. The voters demand it. Independent economists recommends it.
And the bankers have to adjust. They should not have incentives that can promote uneven developments in the economy.
CEO of JPMorgan, Jamie Dimon, complains that he is tired by the fact that his employees are slated for for their pay and bonus deals. When will he himself take action?. The ball is ow in his corner. It is just nonsense to talk about skilled staff who deserve to be rewarded. Yes, it is correct, but there are limits. And Dimon moves well beyond the limit.
The same applies to Annika K. Falk Branch at SEB.
It is not possible to avoid high payments for last year. It’s due to signed agreements, and the fact that there has been a significant upturn in the economy during the year.
But the authorities must clearly signal that the rules will be changed and bonuses must come down.
There is no reason to ease pressure on the financial industry. After all, they have to take the major blame for the financial mess we’re thrown into in.
The society depends on a well-functioning financial system, but the industry must come to terms with the strings of control from the governments who saved them, and that the employees will be earning less in the future.
By Magne Lerø
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