Bankers still seem to think they can justify lavish rewards by comparing themselves with top footballers and Hollywood stars. Try again. The Financial Services Authority’s alleged watering down of its proposed pay code is more likely to excite parallels with last week’s extraordinary £40m jewellery heist. Men in suits saunter into a central London location, clear out the display cases and make their getaway with the swag. And here’s the kicker: this happens only a few years after the same place was robbed by another gang of villains.
Every armchair security specialist can see the solution to this problem: better security, closer surveillance, more aggressive deterrents. Similarly, every armchair pay expert out there has an idea how to clamp down on bonuses, from a complete ban (see them pop up again under a different name) to clawback or deferral (watch competing banks simply buy out the most talented traders).
But there’s a difference. It’s not a problem if jewel thieves decamp to, say, Zurich. But it matters to the UK if bankers do. This is hard for some people to accept, but it does. Mayfair without violent armed robbers would be a better place. The City without appropriately incentivised bankers would not. As Hector Sants, the FSA chief executive, has pointed out, if the government considers as a matter of social policy that it needs to rein in bonuses, it, not the regulator, should act.
As for implementing a tougher code, here the FSA is hamstrung. It could wait to achieve global consensus on a stricter code – and arrive too late to prevent a resurgence of risky remuneration practice. Or it could move more swiftly than the UK’s competitors to put in place the toughest practicable code. It has taken the latter path.
I would like to have seen an even more crusading attitude on the part of the FSA. Having talked tough in the first half of this year, Lord Turner and Mr Sants were always going to face the problem of persuading their global counterparts to join a race to the top. To make up for pulling a few punches on pay, they now need to make a couple of pledges: first, to fight for this code as a bare minimum standard for world banking – we need a ratchet against backsliding on these rules that matches the all-too-prevalent ratchet that keeps all executive pay at high levels; second, to employ the useful tool of increased capital requirements to act against risky pay policies as soon as they spot them, rather than keeping it as a nuclear option. Oh, and third, to send a firm private message to bank bosses: unless you want to be treated as gentleman-burglars, stop comparing yourselves to George Clooney and Brad Pitt in Ocean’s Eleven.