I am sure I have made this point somewhere before on this blog, but a quick search through my archives doesn’t reveal it, so…
All this business about bankers and CEO bonuses makes me uneasy. The pattern is now very familiar: it transpires that some despised ‘fat cat’ – a banker or the head of a quango, say – is due to be given a huge bonus on top of their already huge monthy remuneration. Outrage ensues. The aforementioned ‘fat cat’ is chased by the press and slandered by politicians and interest groups. The ‘Fat cat’ eventually issues a statement saying he will give back the money.
Don’t get me wrong. These overpaid buffoons irritate me as much as the next man. I don’t think they deserve to be paid as much as they are. The principle that the pay to a top executive should be a function of the lowest paid employee (or vice versa) seems elegant to me. And I certainly disagree with the concept of a bonus being paid when a company loses money or misses targets, whether that is in the public or private sector.
However, this business of going after the bonuses of these men (and they always seem to be men, don’t they?) feels a little like shutting the door after the horse has bolted. Or rather (to fashion a slightly better variation on the metaphor) it’s like shooting the horse after it’s bolted! It is wrong and misguided and misses the real picture.
It is wrong because there is a rule of law issue at stake. These men entered into legal (if confusing) contracts, which are now paying out in their favour. These people and the contracts may be unpalatable and immoral, but they are legal (if they were not legal, there would be no need for outrage, because the Fraud Office would charge them with corruption). These executives are clearly out of touch with the Common Man, as evidenced by their behaviour and actions in trying to claim a huge bonus in this era of austerity. But that personal pathology is not illegal either. The fact is, the law of contracts and employment has allowed a huge loophole to open up. We should not be surprised when some people exploit it.
The outrage is also misguided. Instead of expecting people just to be better and not exploit loopholes, the politicians and the public they serve need to collaborate to close such anomalies. This is the proper response when something happens that one doesn’t like.
Instead, we have the spectacle of politicians and the press hounding someone into foregoing something to which they are legally entitled. That may seem acceptable in the case of the hated bankers, but for good or for ill, the same laws should apply to us all and it’s a dangerous precedent to set. “First they came for the bankers.” vitriolic outrage over footballers or TV celebrity pay could be next. In many parts of the world, businesses that we deem perfectly normal are considered immoral, and the gains ‘ill gotten’. What would we say if the social conservatives in other parts of the world discovered the profit margins of a sex toy factory, and launched a popular movement to demand that the owners donated all their profits to charity?
The slippery slope argument holds good here. If, when confronted with a situation we don’t like, we seek to have that law ignored, waived, disregarded or broken to suit our moral tastes, then it’s is only a short time before that law becomes unworkable. That might be fine for some forms of civil disobedience, where The Law Is An Ass. But it is certainly not fine for contract law, which I’m pretty certain the majority of people believe should remain in force..
The solution of course is to change the rules, and it’s telling that the politicians find it easier to criticise the predictable outcome of an existing law, rather than do the work to forge a new one… even though executive pay has been a sore point since at least the last time the Tories were in power. Instead, we have this odd spectacle of the politicians expecting the most driven and selfish Alpha Male elements of our society to magically abide by a law that should exist, but does not.
Update, July 2012: I just knew I had made a similar point on this blog before. Back in 2008, I argued against a Windfall Tax on Big Oil companies for the same reasons.