Despite vague talk of a possible “claw back” option that would allow bonuses to be reclaimed if they were not matched by long-term performance, no consensus has emerged during the G20 finance ministers' meeting on curbing outlandish pay packages. While the bonus culture is widely seen to be fuelling reckless behavior in the financial sector, in the end the British authorities still share their transatlantic colleagues' view that less is more when it comes to regulating the free market, even if they pay lip service to the need to reign in excess. G20 members did agree to continue with economic stimulus measures to support the fragile “green shoots” of recovery that have appeared in several countries. But while the stock markets are in a more buoyant mood and traders act as if the party is back on, an army of jobless people around the world is still waiting for real growth to generate employment. In the US, the unemployment rate is, at 9.7 percent, the highest in 25 years. In Turkey, the latest figures place the overall jobless rate at 13.9 percent. The rate is higher, 16.5 percent, in urban areas, and higher still among young people.
The world will soon be marking the first anniversary of the demise of Lehman Brothers, which led banking dominoes to collapse around the world. The crisis could have been an opportunity to address the gaping inequalities of the world economic system and to put growth on a more sustainable and solid footing. The G20 has successfully contained the worst of the crisis, but many expected more regulations.
This window appears to be closing as it is clear that most people, with Wall Street in the lead, want to return to business as usual. Bankers are of course not the only overpaid executives: Million-dollar salaries are paid throughout the corporate world. But in the services sector performance can be a particularly elusive concept, as the burst financial bubble showed last year. Some of the amazing profits displayed on investment banks' balance sheets turned out to be little more than hot air.
The Washington-based Institute for Policy Studies, which has been monitoring executive pay for years, has just published its latest survey, aptly entitled “America's Bailout Barons.” It focuses on the 20 banks that were expensively rescued thanks to US taxpayers' largesse. If strings were attached to the bailouts, they were clearly not very tight. While the rescued banks laid off a combined total of 160,000 employees, their CEOs still managed to pocket an average of $13.8 million each, despite their disastrous performance. In case you were impressed by the gesture of Citigroup CEO Vikram Pandit, who magnanimously offered to work for a symbolic $1 until his company returned to profit, don't be. According to IPS, he pocketed $38 million last year while firing 75,000 workers.
I know the usual arguments. Curbing bonuses and excessive pay packages would be impractical. Another oft-repeated bromide is that bonuses are not the illness, they are a symptom. True, but if the size of pay packages is the side effect, it would suggest that the risk culture is still generating cancerous cells that will grow again to threaten the world economy. While US taxpayers should be the first to demand accounts, last year taught the rest of the world that no one around the world can afford to ignore trends that begin across the Atlantic.
Most of those who object to obscene financial rewards -- the average CEO is currently paid 319 times more than the average US worker -- also advocate other measures such as a tax on financial transactions to prevent speculative moves that bring profits to the banks but few benefits to the economy as a whole. As for the argument that if not sufficiently rewarded, top bankers will seek work elsewhere, one can only wonder if their departure would be such a big loss.
