Bank employees do better than owners

Ben Chu

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:

than2 Bank employees do better than owners

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.

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  • Frances_Coppola

    Not any more, according to that chart. Ownership is definitely better than employment at the moment.

  • nigell

    What a useless piece of analysis, Ben Chu scraping around to ’stir’ something up about the Banks. As a shareholder I think I should write to the Chairman and tell him to slash the bonuses, demotivate the staff, not forgetting to remind them that many will lose their jobs, whilst demanding that profits can go up to pay my Dividends.

  • Guest

    Companies which reward their workers better than their shareholders?  Companies which value their workers’ talents so highly they reward them excessively? This is absolutely outrageous.  Something Must Be Done.  What has capitalism come to?

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