Will low mark 666 be revisited?
Bankers deliver a sombre, sobering soliloquy
I was therefore bewildered when I saw the compensation packages awarded to some bank chiefs in 2009 and 2010. It was as if nothing had changed. In May 2010, I wrote about a Credit Suisse performance incentive plan that paid out handsomely to certain senior executives. Brady Dougan, for example, Credit Suisse’s chief executive, received about SFr70 million ($84 million). The plan paid out in April 2010 – when the Credit Suisse share price was around SFr55. Today, some 14 months later, the share price is down over 40% and heading towards its crisis low of SFr24. But Credit Suisse is not alone in proffering plump packages. This March, the Financial Times reported that the co-heads of Barclays’ investment bank, Jerry del Missier and Rich Ricci, each earned some £40 million ($64 million) in salary, bonus and share awards for 2010. Since early March, Barclays shares are down some 25%. “Barcap pre-tax profit virtually doubled in 2010,” an insider sniffed. “And our relative share price performance has been in line with peers.”
Is it any wonder that investors are rushing to offload these stocks? Am I the only person who ponders whether these companies are run for the benefit of the employees or the shareholders? “That’s unfair, Abigail,” a banker chided. “Bank stocks are going down because of tougher regulation and slowing economic growth.” However the real issue is that for the first time, middle-level bankers are disenchanted by the big packages their bosses are taking home – especially as these men are mostly managers not producers. In the old days of “greed is good”, worker bees knew that they too could be in line for huge rewards if they hung around and reached the top of the totem pole. Now they’re not so sure: it seems as if the dice might be stacked against them –just like normal people. Stock is a much larger proportion of mid-level bankers’ compensation than it used to be. And bank shares have been trending lower for a while. Perish the thought that bank shares might be in a secular down-trend in which case the shares you get today will be worth less when they vest in two or three years’ time. That is a horror movie without a happy ending.
This gap between senior management and mid-level bankers’ pay is destructive and undermines morale. But finance is facing another big post-crisis problem: the overall compensation structure is no longer feasible. But because the industry is a cartel with very strong “unions” (“if you don’t pay me, I’ll cross the street”), bank bosses appear impotent. A source elaborates: “The investment bank model was predicated on getting promoted and paid. But that era of cyclical growth is over. No bank has grasped the nettle of compensation. After 2009, all the bank bosses adopted a “me-too” strategy on compensation. The decision to substantially increase base salaries to soothe the pain of lower bonuses was misjudged. High fixed costs are the last thing the industry needs now as revenue slows. “Part of me believes the good times will roll again, part of me fears they are over forever. What do you think? For more on this theme, please read a prescient article: “Banking isn’t working,” in the April 2011 issue of Euromoney.
And here’s one postscript on the challenges facing senior management as they count their outsized pay cheques. A thoughtful chief executive told one of my colleagues this month: “During the financial crisis we lost a generation of very, very good people from the industry. We need to rebuild that talent pool.” The disaffection about compensation among those looking to climb the ranks is unlikely to help refill the pool.
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