Fair But Fairer to Someone

For once, let us put anger and emotion to one side. The United States is home to four of the nine largest banks in the world – JP Morgan, Bank of America, Wells Fargo & Co and Citigroup Inc. It is also home to four of the six most handsomely rewarded bank CEOs. If America’s make-believe capitalists want to pay their CEOs exorbitant wages, that is their business.

On the other hand, China boasts three of the world’s biggest banks, yet the leader of those banks – Industrial and Commercial Bank of China (ICBC), China Construction Bank and Bank of China – are among the lowest paid of those surveyed by Reuters. The chairman and the president of each of the banks are paid roughly $230,000 per annum. Mr Jian Jianqing, chairman of Industrial and Commercial Bank of China made just $234,700 in 2008 and that was less than 2% of the $19.6 million awarded to Jamie Dimon, chief executive of the world’s fourth largest bank, JP Morgan Chase & Co. In fact, ICBC’s Jiang took a 10% pay cut in 2008, even as ICBC’s profit jumped 36% to US$16.23bil.

In the case of China, one needs to acknowledge the fact that some of the Chinese bank executives may be willing to accept the pay level of a top government official in the hope of moving into a powerful political position in the future
Kiwi Sir Ralph Norris, chief executive officer of the Commonwealth Bank of Australia, is one of the world’s highest paid bank CEOs. Sir Ralph's pay came in seventh in a Reuters survey of CEO pay levels at the world's 18 biggest banks by market value. Commonwealth Bank 's market capitalization, by contrast, was sixteenth out of 18.

HSBC Holdings, the world’s third largest bank by market capitalisation, paid CEO Michael Geoghegan US$2.8mil in 2008 – much more than his Chinese counterparts but far less than JPMorgan paid Dimon.

I am pretty sure that one of the consequences of the ongoing economic crisis is a harder look at the compensation given to company leaders. The multi-million dollar packages have long been criticized, but in times of economic growth many were content to reward success. Financial Times columnist Michael Skapinker commented that ill-feeling about high pay is widespread in both the U.S. and Europe. It turns out that in the United States nearly five thousand bankers and traders were paid more than $1 million in bonuses in 2008. According to a July 31 report by the New York Times this came at a time when profits at the biggest banks plummeted, and many of them accepted tens of billions of dollars of taxpayer money.

While the banking and finance sector might be holding on to past patterns of behavior there are, however, signs of change in other areas. Added to this was the admission by Goldman Sachs CEO Lloyd Blankfein, who said Wall Street compensation needs to be overhauled. In short, it’s easier to point to the problem of excessive executive salaries than it is to provide a solution.