Wednesday, 19 January 2011

Philip Hampton, RBS Bank chairman, declares many bankers are overpaid

Seen this really important post on Robert Peston’s BBC blog? It is not just another piece about overpaid bankers. He quotes Philip Hampton, RBS Bank chairman, who he interviewed for a BBC 2 documentary.
The star quality, as it were, seems to filter down to people who don't seem so star quality. There is, if I can use the expression, a sort of gangmaster cultural phenomenon in this, that you recruit top people who really do make a difference, who really do move markets and get business and are really high achievers.
 But they do tend to associate themselves with people who aren't such stars, but they want them around and they trust them, sometimes they move with them and there is a team associated with it. And the disparities between the top stars in the team and some of the journeymen players, if you like, is probably not as marked as it should be."

Inevitably some will see similarities with Premier League football teams, in which even quite mediocre players earn tens of thousands of pounds per week, because that's the going rate for the Premier League.

Hampton says that when the real stars leave, "they take their clients and their business with them, and we see this routinely". That's why RBS feels obliged to pay huge bonuses to these top performers. But it is "one of the major challenges" to reduce the pay of the more average bankers in the teams assembled by these stars.

Hampton also implies that investors have been irrational in allowing banks to pay huge bonuses. He says:

"This explosive growth in financial services meant that thousands of people, arguably tens of thousands of people, are extraordinarily highly paid. The most peculiar thing about it all, actually, if you look at the last ten years of massive increases in pay is that the performance for shareholders has been pretty disastrous really across most banks.

So the upshot is that top bankers recognise they are paying out far too much to their staff at the same time as the performance of most banks “has been pretty disastrous”. The problem is that either they like the resulting upward pressure on their own pay...or they really don’t know what to do about it. Maybe Vince Cable is right, after all, and they need a hand?

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