Critique on Bank Executive Bonus Cap Criticism

‎”SIMMERING anger over bankers’ pay was fuelled afresh on May 9th when a British court ruled that Commerzbank, a serially bailed-out German bank, had to pay bonuses promised to some of its investment bankers in London even though it subsequently posted colossal losses and collapsed into the arms of the state. The court ruled, reasonably enough, that a promise made was one that really ought to be kept.
The answer of some policymakers is to restrict what can be pledged in the first place. On May 14th a committee in the European Parliament is due to vote on a proposal to limit bankers’ annual bonuses to no more than their base salaries.
(…) The proposed rule, however, introduces new dangers. It will almost certainly lead to higher basic pay for bankers. That will weaken banks’ ability to cut costs in downturns (see chart), which is not obviously helpful in ensuring the stability of the business. Depending on how it was applied, it could encourage American and Asian banks to move global businesses out of London. And it threatens to handicap European banks in markets such as Brazil or China, where competition for talent is fierce.”

What the critics in the Economist magazine are merely indicating that if bank executive bonuses are kept, they raise their salary, is that higher salaries should be a) taxed at a higher rate by the government, and/or b) also be legally capped.

To suggest that higher bank executive salaries will diminish the bank’s ability to cut costs during downturns simply assumes that high executive compensation is written into law. Nothing could be further from the truth. The Economist is dancing on top of this financial superstructure, never for a second conceiving of populist anger that could lash out against the 1% banksters, and make the case for extraordinary executive compensation at a time of enormous pain and austerity for the population enormously difficult.

The third charge is that highly competent managers will move out of Europe, which assumes that high pay is necessary to attract the best managers. This is nonsense, because a) if the banksters were so competent, how could they blow up this economy (with JP Morgan slated to lose over $2 billion recently), and b) competent managers can also be found at a lower rate, as long as executive compensation is capped across the board, i.e. world-wide,- a thought that never occurs to the Economist, whose primary objective is the protection of 1% wealth and big business rather than the common good.

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