Compensation for bankers, especially bonuses, are a never-ending story of unhappiness. Many of the bankers receiving large bonuses are always convinced that they did not receive enough. But investors, regulators and society are quite right to ask what are the returns they receive in return for handsome payments to individuals. The challenges were well captured in an article and Lex comment in the Financial Times on 12 March.
The article noted that for Deutsche Bank the total bonus pool of nearly €2 billion was more than 16 times the profit earned by the bank. Investors, and specifically Union Investment one of the largest German investors, are not receiving any dividend. The article goes on to note that whilst the senior executives agreed to forego one month salary as solidarity for those suffering from Covid-19, this “sacrifice” was more than offset by the high level of bonuses. Does the Deutsche Bank senior management really believe that this comparison will not be seen?
Of further note in the article was that Deutsche Bank wanted to pay even more in bonuses but was stopped by the European Central Bank. Of further interest was that of the top earners at Deutsche Bank (e.g. more than €1 million), more than 10% had left the bank and the amounts included severance payments. This sounds like a great way to reward failure rather than success.
Lex focused not only on Deutsche Bank but also on Credit Suisse where the comment also covered the impact of the ongoing Greensill scandal. Lex pointedly notes that senior Credit Suisse staff has been known to speak at the World Economic Forum in Davos on responsible leadership whilst implying that the actions of the same management relative to their own compensation calls into question their own responsible leadership. Lex goes on to note that there are very different views from within the banker bubble and outside that bubble in general society. Lex concludes: “Banking’s social contract is constantly rewritten. Paymasters should proceed warily.” Words of wisdom that I doubt will be followed.
