As bonus season in the City comes around yet again, banker bashing has become popular once more.
Personally, I believe the remuneration they receive is ludicrous. But that’s also because I’m in a relatively low paid job. I, like many of my countrymen, are jealous. And with good reason – money. Most people want what they can’t have and desire to live comfortably. When living costs are outpacing wages, the comfort zone gets squeezed until only those who can afford it get to sit on it.
Anyway, the issue surrounding bankers and their bonuses arrive from ignorance on the nature of shares. I must be honest, I’m not au fait with shares but I will try my best to explain the situation.
Bankers, like Stephen Hester of RBS, get bonuses in share based bonuses – no cash and can’t be sold for 3 years and are, thus, dependent on the value of the bank in 3 years time. This gives the bonus receiver a vested interest in how the bank operates and operates at all times to increase the share price of the bank for money is driver.
However, Hester has given up his bonus which means that, at today’s prices, HMRC lost out on about £500k in tax. If he had kept them for the minimum 3 years and in that time RBS had increased its share price to the magic 70p, the tax payer would’ve got its money back from the bailout, plus a hefty source of revenue from all the share based bonuses issued 3 years previous. Win/win, no? Aye, it is a win. Alas, short-termism, which was previously confined to political and investor classes, has now inflicted the other classes. Instant gratification will be the ruin of this country.
So, why will banker bashing turn you blind?
Imagine you have cataracts. Your eyesight is deteriorating at a fairly rapid rate. You need surgery to remove them. It’s a costly procedure. The NHS, the bastion of collective healthcare, has been decimated by underfunding, due to a fall in income revenues. You don’t have enough money for the surgery as you have no job, due to the withdrawal of the financial sector in this country as the hounding and the negative media was not conducive to good business. Plus, the withdrawal of the financial sector puts undue pressure onto small businesses – like the one you used to work for. Without surgery, you will go blind and if you go blind you can’t get a job. It’s a cruel world.
The above example may be a little extreme, but the moral behind the story is that banks are, and always have been, wealth creators. Without bonuses bankers have no real interest in the business they work for. They end up working for other banks located in countries with a less negative media and public. In the end, all banks relocate out of the country and with it all the funding that small businesses rely upon.
Money makes the world go around. The sooner one remembers that, the sooner one can get the economy growing again.