Banking bonuses – a vultures’ feast


In capitalist countries today, many of the biggest exploiters parade as mere employees. However they are employees who have control of vast amounts of other people’s money, and theoretically their function is to use that money for the purpose of securing profitable investment of that money for the benefit of investors. Being in the position of controlling capital – controlling the means of production – these ‘employees’, in the absence of any effective means of holding them to account, are free to use their positions of authority to direct enormous amounts of wealth towards their own pockets, at the expense of genuine employees, who earn as little as the employer can get away with paying them. Ordinary investors with modest savings are also short-changed, as money is diverted from either expansion of the business or dividend for the benefit of the rich and powerful.

If we look at how much of a bank’s profits end up in the overstuffed pockets of the Old Boys who run them, it is quite an eye-opener:

For instance, “HSBC paid out dividends worth a total of $9.2bn last year, more than double its $3.92bn bonus pot. In contrast, Barclays came under fire from the Institute of Directors earlier this month for paying nearly three times as much in bonuses as it did in dividends…

“Mr Gulliver admitted the bank missed its targets for cost efficiency and return on equity last year , as it reported a 10 per cent year-on-year fall in pre-tax profits in the final quarter ” (Sharlene Goff and Martin Arnold, ‘HSBC plans to sidestep EU bonus cap revealed’, Financial Times, 25 February 2014).

It seems incredible that people who are paid million pound salaries for running banks are considered generous to shareholders if they allocate to dividends “more than double” their bonus pot! Yet apparently HSBC is the second largest dividend payer in the FTSE 100! Plundering the profits has become an unquestioned norm.

John Kay, who was once a director of a mutual like the Co-op, writes apropos the Co-op that “The recent report from Lord Myners , an independent director of the group, reveals a governance structure awful in its complexity, dominated by a group of people too numerous to be held to account but too few to be representative. They enjoy power without responsibility. … I cannot say I felt held to account as a director of a mutual; accountability was really to my colleagues and my conscience “. (‘the Co-op’s mistake was to detach responsibility from power’, Financial Times, 19 March 2014). Although Mr Kay would no doubt disagree, this would appear to be the situation in most banks, whether mutual or not, with executives’ conscience being dictated by their class position as exploiters.

The whole issue of bonuses for those in control of banks, including banks that have been bailed out at vast taxpayer expense, illustrates this egregious form of exploitation. Lately Barclays, HSBC, Lloyds, RBS and even the Co-op Bank have hit the headlines because of the escalating salaries and bonuses being paid to their executives, while ordinary employees have their wages frozen or are made redundant, and the dividend paid to ordinary investors is measly, to say the least. Large bourgeois private investors may be invited to join the board, on a basis requiring only occasional attendance of course, and thus qualify for a share-out of enormous bonuses, providing a far better return on their investment than any dividend or even increase in share price, while workers who put their meagre wages or pensions in a bank or building society, or whose pensions are invested for them on the stock exchange, get virtually no return at all.

Recent bonuses and redundancies.

Barclays

The Barclays Bank plc bonus pool this year is up 10% this year and stands at £2.48 BILLION, despite a 32% fall in the bank’s pre-tax profits to £5.18 billion! Overwhelmingly this money goes to top management. Much publicity has been given to Antony Jenkins, the Barclays CEO, and his team forgoing their bonus entitlements this year, but be not fooled:

Under the terms of his contract, Mr Jenkins, who took over as chief executive of Barclays in 2012 in the wake of the Libor-rigging scandal, is entitled to a bonus worth 250pc of his £1.1m salary, or £2.7m.

“However, while he will not be taking his annual bonus, Mr Jenkins could receive shares worth about £4m next month as part of his long-term incentive scheme . (Harry Wilson, ‘Barclays chief Antony Jenkins declines £2.7m bonus’, Telegraph, 4 February 2014).

Mr Jenkins … told the Telegraph newspaper increased bonus payouts were essential to prevent a ‘death spiral’ of staff leaving.” (BBC, ‘Lloyds and Barclays avoid EU bonus cap by paying shares, 5 March 2014). Given that Barclays is proposing to make 12,000 staff redundant this year, including 6,000 who are UK-based, this hardly seems to ring true!

Royal Bank of Scotland

The Royal Bank of Scotland which is 81% owned by the taxpayer, also knows how to treat its bourgeois top management very well, and is not in the slightest inhibited by the shame of its bailout or by its continuing losses. ” Royal Bank of Scotland has defended plans to pay £588m in staff bonuses despite suffering an £8.24bn loss in 2013 as it slumped into the red for the sixth successive year’ , says Sean Farrell in The Guardian of 28 February 2014 (‘RBS pays out £588m in bonuses despite suffering £8.24bn loss’).

While boosting their own rewards, the executives are completely indifferent to the fate of their wage workers. According to Harry Wilson writing in the Daily Telegraph of 21 February 2014 (‘RBS to slash 20,000 jobs’), “As much as a fifth of RBS’s staff could face redundancy…

“The job losses and business closures will likely see RBS staff numbers, which stood at 161,000 at the time of its £46bn bailout in 2008, fall to below 100,000 for the first time since the bank’s 2000 takeover of larger rival NatWest.”

Like his counterpart at Barclays, CEO McEwan claims to be wedded to the concept of fair play:

Although Mr McEwan had already waived his bonus along with his other top executives, he defended the £576m set aside for other bonuses. ‘All I ask for is to be able to pay people fairly’

(Michael Arnold, Sharlene Goff and Andy Sharman, ‘RBS braced for five more years of pain as £576m goes to bonuses’, Financial Times, 28 February 2014).’ Quite apart from the difficulty of envisaging the ‘fairness’ of shelling out large bonuses to bankers who have been losing money and diminishing the funds entrusted to them, there are, of course, simple souls around who might consider it fairer to pay that kind of money to those the bank has been making redundant, or proposes to make redundant, as compensation for loss of their livelihoods, rather than to pay it over to people who already have more money than God … Obviously the bourgeois concept of fairness and the proletarian one are diametric opposites.

HSBC

Just the same story at HSBC: ” The bank’s top three executives will receive fixed ‘allowances’ worth about 130 per cent of their salaries this year, the bank said on Monday. Stuart Gulliver, chief executive, will be given a £1.7m fixed allowance on top of his £1.25m salary.

The changes, which will affect 665 staff, are intended to cope with new EU rules that limit bonuses to no more than 200 per cent of salary from this year …” Sharlene Goff and Martin Arnold, ‘HSBC plans to sidestep EU bonus cap revealed’, Financial Times, 25 February 2014).

Gosh, how will they manage?

Perhaps they could take some advice from former employees who are having to manage on far less. Last year it was reported in the Daily Telegraph that “HSBC has cut 34,000 full-time jobs since 2010 and at the end of last year [2012] the bank employed 261,000 staff around the world. This is expected to fall to 254,000 as part of the existing cuts and the bank said it was now targeting a global headcount of between 240,000 and 250,000 by 2016 “. (Harry Wilson, ‘HSBC eyes 14,000 jobs as it looks for $3bn cost saving’, 16 May 2013).

Lloyds

And again at Lloyds Bank, 33% state owned:

Bailed-out Lloyds Banking Group has handed its top management team – including chief executive António Horta-Osório bonuses potentially worth more than £27m. …

“A total of £4.7m in shares was handed to eight members of the management committee as bonuses for 2013 which can be cashed in from June this year .” (Jill Treanor, ‘Lloyds top management bonuses potentially worth more than £27m’, Guardian, 25 March 2014).

Apparently the executives believe they deserve this little pat on the back since the bank managed this year to report a pre-tax profit of £415 million, its first profit since its £20.5bn taxpayer bailout. Well, it might be argued that the money should have been repaid to the taxpayer as a small means of offsetting the budget deficit that the Chancellor of the Exchequer is struggling in vain to reduce. Lloyds Banking Group, however, demurs. ” It said its remuneration committee ‘strongly believes in pay for performance, in providing a competitive package that allows us to attract and retain the key talent.'” (BBC, ‘Lloyds and Barclays avoid EU bonus cap by paying shares, 5 March 2014).

Unfortunately the only ‘talent” recognised by the bank is having pots of money. The real work of researching good investments is done by the lower echelons of bank staff – the people they are happy to make redundant in order to transfer the amount of their wages to their bonus pool:

The announcement by Britain’s Lloyds Banking Group to slash more than 1,000 jobs in yet another job cut plan has drawn widespread condemnation.

“The bank said in a statement on Wednesday that it would cut 1,080 more jobs and outsource another 310 on top of nearly 35,000 jobs slashed since 2008.

“The new round of job cuts comes at a time when the bank has collected more than £2 billion in profits and its bosses have been granted huge bonuses, according to banking union Unite.” (Press TV, ‘Lloyds banking group censured for more job cuts’, 30 January 2014)

The Co-op

Finally, all those who believed that the Co-op Bank represented an oasis of socialism in the cut-throat world of high finance, will have been disappointed to learn that it’s no different:

The Co-operative Group has unleashed a fresh political row after documents leaked over the weekend showed the new chief executive will be paid £3.66 million for eight months’ work last year . (Martin Waller, ‘Co-op chief gets £3.7m for eight months work’, The Times, 10 March 2014). This modest package is provided at a time that the Co-op is facing the worst losses in its history, and a considerable number of redundancies are expected to be announced. It seems fairly obvious that this money isn’t being paid out of a need to attract or retain talent! It is merely the minimum that a bloodsucker could reasonably expect to be awarded – it is at the bottom end of the scale for bloodsucking.

We are told what bankers get is only right:

RBS chief executive, Ross McEwan, acknowledged that the issue was “highly emotional” as he explained the multimillion pound windfall at the taxpayer-owned institution.

“I need to pay these people fairly in the marketplace to do the job .” .(Sean Farrell, ‘RBS pays out £588m in bonuses despite suffering £8.24bn loss’, The Guardian, 28 February 2014),

Actually his competence as a steward of other people’s money is being condemned out of his own mouth since it is certainly the case it is not necessary to waste so much money for top executives to oversee the loss of money since a small notice in an appropriate publication advertising the post at, say, £100,000 a year (with no bonuses or share options), would attract an avalanche of talented and highly-qualified applicants with good banking and investment experience – but mere wage workers, used as they are to managing on far less than £100,000 a year, quite frankly need not apply: who do they think they are?

As it is, ” City bonuses increased by almost a third in 2013 as workers in London’s financial centre commanded the highest average payout of all bankers around the world.

“According to recruitment site eFinancialCareers, which questioned 728 UK-based financial services professionals, the average bonus increased by 29% in 2013 when compared to 2012 “,.(Ian Silvera, ‘Bonuses not enough despite topping global league’, International Business Times, 11 March 2014). It seems, however, that this massive entitlement is not considered adequate by those who receive it – though they would no doubt resist with great indignation any demand by their proletarian employees to be given a wage rise in line with inflation.

Conclusion

Given their shameless looting, bankers (appropriately dubbed ‘banksters’) are often blamed for the current financial crisis and for the austerities and unemployment visited on the working class in its wake, and the illusion is peddled that better regulation of banking will avoid a crisis arising in the future. It is important to remember, however, that the crisis is a crisis of overproduction – of ever-expanding productive forces clashing head on with the relatively extremely modest expansion of the purchasing power of the masses of consumers, leading to masses of unsold goods, idle equipment, a lack of avenues for productive investment, casino capitalism, and of course expanding unemployment and declining living standards. However much the banksters effectively embezzle, these embezzlements are not what cause the crisis. Recurring crisis is an endemic and unavoidable feature of the capitalist system. That system, however, is kept in place by the bourgeois ruling class that benefits from it. The banksters for the most part are established members of that class that has positioned itself to appropriate for itself the product of the work of all members of society in return for returning to them in the form of wages and benefits only a fraction of what they have produced, and that class defends the dangerously outmoded capitalist system because it supports their ability to exploit in this way. It is idle to think that crisis can be averted by better regulation of banks. Banks are already regulated as effectively as is possible under the conditions of capitalism, although we would admittedly not be entirely averse to introducing the death penalty for bank fraud such as they have in Vietnam, where they regularly shoot bankers who dream up schemes to enrich themselves at the expense of their customers. To the extent that top management may be defrauding not only proletarians but also some of their bourgeois customers, rather more regulation of bankers might limit the opportunities for one section of the bourgeoisie to enrich itself at the expense of another, but that is as far as it goes. The question that has to be asked is why the hard-working and long-suffering masses of the people tolerate these shameless parasites at all!