Bank employees do better than owners
Dr John Thanassoulis, of Oxford University, has produced an interesting paper that argues banks should not be permitted to pay more than a fixed proportion of their shareholder equity out in bonuses each year.
This would, the economist claims, end the bonus arms race between banks, in which all institutions have an incentive to push up remuneration to dangerously high levels in order to hold on to, or poach, “talent”.
The present bonus arrangements, he concludes, can “increase the risk of default significantly”. So firm regulation of bankers’ pay, according to Thanassoulis, will serve to make banks safer and improve overall financial stability.
I found this chart in the paper, showing the dividends and bonuses paid out by 21 of the world’s largest banks as a proportion of shareholder equity in the years leading up to the credit meltdown, very telling:
What this chart shows is that banks were on average paying out twice as much in bonuses to staff as they were paying out in dividends to shareholders in the boom years. Which all seems to confirm that the best way to make money out of a bank is to work for it, rather than to own shares in it.Tagged in: banking, bonuses, dividends, shareholders, Thanassoulis
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