With bankers' bonus season in full swing, and thanks to relatively recent European rules, we at least get to see exactly the sort of pay deals being awarded to the top bankers in the City. RBS chief executive Stephen Hester's bonus, which he eventually turned down following public outrage, will be followed by a series of other bonus announcements in the coming weeks.
Most of the focus has been on the fact that these huge bonuses are being given in a time of austerity for everyone else, and that they're rewarding failure, not success, most notably in the case of RBS, whose share price remains painfully low, and where 21,000 people have been laid off.
But if these weren't bad times for the majority, what type of success should be rewarded? Banks where bonuses have been high in the past and are expected to be high again this year include Barclays and Goldman Sachs. Goldman Sachs, of course, was a key perpetrator of the sub-prime mortgage crisis. And both banks are amongst the biggest global profiteers in commodity speculation.
Rising commodity prices over the past few years have been the mainstay of investment banking profits. They have also played a role in food riots and revolutions around the world.
In 2010, the same year as CEO Bob Diamond earned a £6.5 million bonus, Barclays earned an estimated £340 million from speculating in food futures markets, making it the UK's biggest player in these markets, and earning it the "worst company of the year" award at this year's Public Eye on Davos.
Goldman Sachs, whose top risk-taking earners averaged £4 million bonuses in 2010, earned an estimated £1 billion in 2009 from food speculation. The result of this type of 'success' contributes to food price rises that were 6% in the UK towards the end of last year. For the poorest countries in the world, food prices have risen by almost 50% since 2007, putting basic staples out of the reach of the world's poorest people, and forcing millions of people into hunger and poverty.
Other risky behaviour by the big banks includes debt-based investment, plunging Europe into financial chaos and raising risks for taxpayers and investors alike, investment in land deals in developing countries which forces people off their land and contributes to high food prices, and investment in toxic assets that contribute to runaway climate change, like the Canadian Tar Sands, where RBS has leveraged almost £7bn finance since it was bailed out.
There was a buzz of CEO lip service to corporate responsibility at Davos, but dig beneath the surface and you'll see finance sector lobbyists taking every opportunity to fend off regulation that would embed corporate responsibility. RBS spent £2.5 million on lobbyists in Washington between 2008 and 2011, opposing measures to enable banking reform that would protect consumers and curb commodity speculation through the Dodd-Frank Wall Street reform act. And UK finance ministers met Barclays at least 15 times within the first year of the coalition government.
So our judgement of bankers' pay shouldn't just be about the end result of the pay deal, but also about what kind of activity is being rewarded and encouraged in the first place.
Regrettably, banks still reward a short-term profit, risk-taking approach, which continues to lead to the pursuit of socially, economically and environmentally damaging activities. Why not pay (modest) bonuses instead for keeping people in work when times are tough? For paying taxes? For pulling out of commodity trading? For investing in the long-term, not the short-term, for example by investing in renewables? For supporting small businesses? For improving corporate transparency?
As our politicians play the blame game over excessive bonuses, and as a few corporate leaders are shamed into not taking what they think they deserve, real change will only come when we scratch beneath the layers of a poison system past its sell-by date. There's far more to excessive pay than meets the eye. And there's a lot more we can do about it beyond curbing this year's pay packets.
Deborah Doane is Director at World Development Movement
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