Why do we pay banksters so much?
When the chairman of the Nationwide building society [British S & L] (whose name, like Geoffrey Howe's, is Geoffrey Howe) tried to justify its executives' pay to a restive AGM last week, he said several strange things. Here's one: "What would the Financial Services Authority say if our chief executive was paid just £100,000? It would shut us down. Nationwide would cease to exist."
Which would be a problem why, exactly?
People don't understand why bank and building society executives are so highly paid simply because there is no adequate explanation. It's an anomaly which, practically speaking, could only be corrected by the very people who benefit from it. That is a key failing with the current financial system. ...
Howe argues the standard case that Nationwide must pay the going rate for high flyers or it will cease to fly high. That makes a certain amount of sense but fails to explain how this going rate was arrived at, or to allay people's suspicions that it's become artificially inflated. What is it that Graham Beale does that someone else couldn't do – someone who'd be willing to take a pittance like £100k? Despite the evidence of Parliament and the early series of The Apprentice, it can't only be feckless attention-seekers who are willing to work for that kind of money.
When Beale moves on – probably to an even more highly paid job at a bank – his successor will be similarly highly paid. Is that because he (or she) (probably he) will be one of a tiny number of people who also have the "Beale touch", that magical ability to make an organisation hugely profitable? Or will they just be highly paid because people in jobs like that always are and they're not going to stop being if they can help it. On some level, is massively overpaying executives a necessary part of engendering confidence in the whole house of cards that we now know the financial sector to be? The idea that a cut-price chief executive might do just as well is too insulting to the industry's self-image to be permitted.
If that's what's going on then a sort of reverse market effect is in operation – where, like with designer labels, the exclusivity of costliness makes an executive seem desirable, capable, even brilliant. What a disaster for shareholders and building society members, as well as customers and social justice, if that's the case; if all of our financial institutions are being led in nude mediocrity by little emperors declaring: "If you want clothes like these, you've got to pay! Financial crisis, you say? Just think how much worse things would have been left to the kind of chump who will work for six figures."
As Lanny Breuer didn't say: "Look at my suit."