Controlling bonuses

Executive pay, in particular at the big banks, is once again a talking point in the European Union, after the 26 Swiss cantons voted in a referendum in favor of capping the salaries and bonuses of company executives, and the European Union reached an agreement to limit bonuses and remuneration for bank executives, despite the head-on opposition of the United Kingdom. This is an important move for Europeans, who have been suffering the consequences of austerity measures, a recession (a particularly deep one in the case of Spain) and high unemployment. But, while the referendum in Switzerland entails the enactment of a law enabling shareholders to veto the pay of board members and executives, it is by no means so clear that the final version of the EU regulations will not end up being watered down as a result of pressure from London’s powerful financial sector.

However, the imposition of moderation on bankers’ bonuses is a decision consistent with the nature and evolution of the crisis in Europe. To justify such action, one need only point to the fact that so many bank bailouts — both on the continent and in the United Kingdom — have been funded with public money, which the taxpayers were not obliged to lend. It should also be remembered that the recession and the hardships of the unemployed in Europe have their origin in decisions made by American and European banks. No one is questioning the fact that financial institutions in Spain that have been shored up with public funds have curtailed the salaries of their executives. The same argument could be applied to the other European banks that have been rescued with public funds, since this bailout gives EU governments and authorities the right to see to it that the conditions that would lead to another banking crisis are not allowed to develop.

The arguments put forward by the British authorities against such measures are unconvincing. If, as George Osborne fears, the EU regulations end up bringing about an increase in bankers’ salaries, it would be the job of the shareholders, and of the law itself, to prevent this from arising. The British chancellor also claims that controls would make it harder “for it to be the banks, and not the taxpayers, who pay when there are mistakes.” But precedents show that with the existing system, free and without limitations, the taxpayers have paid for a considerable part of the mistake.

The Swiss have rolled out salary caps to executives in all companies. In reality, what has been approved via the referendum is a model that should be normal in all companies: that it be the shareholders who — by means of a remunerations committee, made up of independent persons equipped with detailed knowledge of all salary brackets — control the pay and bonuses received by board members and executives. Unfortunately, this has not been normal company practice in recent years, a situation that has paved the way for cases such as that of the ex-president of the pharmaceutical company Novartis, Daniel Vasella, who received a 58-million-euro severance package, something that led to outrage among the Swiss.