Welfare Recipients’ Stunning Sense of Entitlement

The front page of this morning’s Financial Times describes the struggle between the Royal Bank of Scotland and PM David Cameron over executive pay. RBS chairman Sir Philip Hampton’s salary of nearly $2 million is set to be supplemented with a bonus of at least that hefty size. Cameron is calling for executive pay restraint, but the RBS board is intransigent.

The FT quotes a “senior banker” as saying that if Sir Philip doesn’t get a bonus, it would demoralise staff members by signalling that they now effectively work for “an arm of the civil service or a utility rather than for a bank”.

Let’s review the facts for this unnamed champion of free enterprise.

The Royal Bank of Scotland exists today only because the UK taxpayer bailed it out three years ago. The government owns 83% of the bank’s shares. Rather than be grateful for this generous welfare programme, the wizard of private industry quoted in the article is outraged that he might have to accept some public sector style restraints on compensation.

Cry me a river.

Comments

  1. R Johnston says

    Salary caps are a ridiculous idea in professional sports leagues.

    In the realm of executive compensation, on the other hand, they’re entirely appropriate, especially given the inbred, noncompetitive, nonmerit based nature of current determinations of executive compensation plans. They’re entirely appropriate even absent government bailouts given the theft from shareholders that they inevitably involve. In the presence of government bailouts and the accompanying theft from taxpayers of unlimited executive compensation they’re entirely necessary.

  2. Warren Terra says

    the wizard of private industry quoted in the article is outraged that he might have to accept some public sector style restraints on compensation.

    As I read your post – and I didn’t bother to click the link – he will be outraged if he doesn’t get a bonus on top of his $2 million salary. A quick Google turns up a Guardian story about the highest-paid civil servants in the UK, and some of them are indeed paid quite shockingly high sums by American standards (nearly $600,000 in one case; I think the highest-paid civil servant in the US is the US President, at $400,000, unless you count non-salary benefits (housing, entertaining, other expenses) or unless you consider college football coaches to be civil servants). Still, even with that rather incredibly high sum for context, no British civil servant gets even 1/3 of this guy’s base pay.

  3. Ebenezer Scrooge says

    It’s not about executive compensation. It’s about bonuses for the Masters of the Universe. The business units in a big bank are like franchises. The bank provides its name, operations, and capital; the business units provide the contacts and Gekkos. As with any franchise arrangement, they split the profits, although the business unit shares are called “bonuses”, and the business units have substantial control of the accounting. And oh, yes. The business unit people can leave if they’re not happy with the arrangement. This is not like most franchise arrangements, where the franchisor is pretty much in the saddle. Imagine professional sports or entertainment and superstars for the basic relationship, with a soupçon of Hollywood-style “percentage of the net” accounting, with the bank in the unhappy role of the investor. The CEOs are as much victims of this as perps. They can’t limit their own pay because of the message it sends to the franchisees.

    It’s a mess. There is no good solution to this, except keeping banks out of the superstar business and limiting them to the boring things like lending and custody and payment services that don’t rely on superstar business units. And nobody has the stomach for this, although the Volcker rule is a halfhearted attempt in this direction.

  4. chris y says

    Of course no British Civil Servant gets any non-salary benefits, whereas I’d be astounded if this guy didn’t get the full bag of mashings – such people usually do.

    • Warren Terra says

      I don’t think that’s true. Some British civil servants must get some non-salary benefits: transportation, even chauffeured transportation, at the highest levels, and possibly housing. It’s not having a Gulfstream at your beck and call, but it’s a non-salary benefit.

      • says

        Wasn’t there just a huge set-to about MPs’ (not exactly civil servants, but close enough) expense claims?

        For fully-booked personnel, I wonder what the salary (or value-added) level is at which providing a car and driver becomes a profitable thing to do. If you can get another 5-10 hours a week of useful work out of an upper-level employee, it’s almost certainly worth it.

        Meanwhile, in my fantasy world there’s a very simple answer to the pay-plus-bonus issue: “Sure, collect your desired wage. The government will then deduct from it — and your other holdings if necessary — the market-rate cost of your share of the monies disbursed so you could keep your job. Oh, there is no market rate because no one else was willing to fund you? Gee, that’s too bad, we’ll have to make our best guess at setting it. Good luck.”

        • Keith Humphreys says

          Paul has it right. A friend who is in the House of Lords tells that their “pay” just about covers transportation, computer access and pencils — they don’t even necessarily get in their budget the costs of a staff member to help them. MPs are paid far far below what the city types take in each year, whether you include expenses or not.

          • says

            I have been arguing recently that legislators should continue to be mediocrely paid, but should have (a little like judges in the US) excessively good pension benefits contingent on not taking other employment. Anything else is effectively delayed bribery.

            For the House of Lords to have no budget makes perfect sense under its original charter, where the Lords not only had their own money but were expected to vote their own interests with a vengeance. Maybe not so much since reform.

  5. Barry says

    Ebeneezer: “The business units in a big bank are like franchises. The bank provides its name, operations, and capital; the business units provide the contacts and Gekkos. As with any franchise arrangement, they split the profits, although the business unit shares are called “bonuses”, and the business units have substantial control of the accounting. And oh, yes. The business unit people can leave if they’re not happy with the arrangement.”

    Then let him f*cking leave. I note that he didn’t, even though the government taking ownership of the bank would likely lead to troubles with lavish bonuses.

  6. Barry says

    I’d also note that ‘don’t let the door hit you in the *ss on the way out’ is a well-established business principle when somebody’s whining about pay.

  7. Byomtov says

    I know I’d be seriously demoralized to learn that my boss was forced to get by on only a $2 million salary, with no bonus at all.

    This sounds like excellent “Dilbert” material to me.

  8. Potifar says

    Well we know what would happen over here….bankster raises fuss and actually gets a Bigger bonus! Let’s hope the english don’t blink on this one. It could help the little o out one of these days.

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