The FT notes Stephen Hester of Royal Bank of Scotland:
mounted a vigorous defence of the lender’s compensation structure yesterday. Before a panel of members of parliament in London, Mr Hester warned that the government-backed bank had no choice but to pay large bonuses to top employees as it had become a “prisoner of the market”.
He said that RBS would pay the “minimum we can get away with” but that the failure to pay market rates would limit its ability to keep and motivate good people.
Isn't the solution obvious? If the market produces such clearly sub-optimal outcomes for all but the very few receiving these sums, which they cannot have earned through their own effort, then it is time to break the market?
Markets are good things when they produce outcomes pretty much in line with society's expectations. This is not happening here. Only regulation will solve that.
So we need to:
1) Have a High Pay Commission
2) Stop tax releif on all pay over 10 times median wage (about £230,000 in the UK)
3) Higher rates of tax on that pay
4) Aggressive measures linked to banking regulation to stop payment being moved to unregulated places
It's that or banking will fail because pursuit of these bonuses will otherwise bring it to its knees again.
Which do we want?