Regulator's statistics on €1m-plus earners show many banks are paying too much given meagre returns to shareholders
Barclays paid 428 staff more than £1m last year. Photograph: Rex Features
Surprise, surprise, the UK's top bankers are still making a packet. The European banking regulator's statistics show that 2,436 individuals in the UK banking industry were paid more than €1m (£870,000) in 2011, down only fractionally from the previous year.
The numbers are interesting as far as they go, but the real story (not covered by the regulator) is how many banks are still paying mega-bucks even when returns to shareholders are meagre.
To pick on Barclays, the bank's most recent accounts, using more up-to-date figures, showed that 428 staff were paid more than £1m last year. That was down from 473 the previous year but the pace of reform is snail-like when you consider that Barclays' return on shareholder equity – a pure measure of profitability – was just 7.8%. The ambition is to exceed the cost of that equity, which the bank puts at 11.5%. That's the true scandal – the gulf between pay and performance at banks.
What the European regulator's numbers show is that next year's EU-wide bonus cap, limiting bonuses at two times' salary with shareholder approval, will have an effect. The bonus ratio for high earners in the UK was 3.5 times base salary in 2011.
But will the effect be what the regulators intend? Almost certainly not. There is a simple way for banks to meet a target expressed as a ratio – just crank up salaries to leave overall pay for high earners unchanged. That's the flaw in the design of the EU legislation. Come 2016, when the regulators and politicians are reflecting on pay data for 2014, the penny may drop.
The numbers are interesting as far as they go, but the real story (not covered by the regulator) is how many banks are still paying mega-bucks even when returns to shareholders are meagre.
To pick on Barclays, the bank's most recent accounts, using more up-to-date figures, showed that 428 staff were paid more than £1m last year. That was down from 473 the previous year but the pace of reform is snail-like when you consider that Barclays' return on shareholder equity – a pure measure of profitability – was just 7.8%. The ambition is to exceed the cost of that equity, which the bank puts at 11.5%. That's the true scandal – the gulf between pay and performance at banks.
What the European regulator's numbers show is that next year's EU-wide bonus cap, limiting bonuses at two times' salary with shareholder approval, will have an effect. The bonus ratio for high earners in the UK was 3.5 times base salary in 2011.
But will the effect be what the regulators intend? Almost certainly not. There is a simple way for banks to meet a target expressed as a ratio – just crank up salaries to leave overall pay for high earners unchanged. That's the flaw in the design of the EU legislation. Come 2016, when the regulators and politicians are reflecting on pay data for 2014, the penny may drop.
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