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EU seeks to cap bankers’ bonuses: is this the right thing to do?


ShoutingIsLeadership

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It appears – well, according to this RTE article – that the EU is getting closer to a point where caps will be put on the amount of money bankers can be paid in bonuses.

From the article:

European lawmakers see a cap - possibly limiting bonuses to double base salary - as the only way to rein in runaway pay, reduce incentives for risk and make banks safer. Talks between EU country ambassadors about the rules broke up last week amid clashes over how far to go. But tougher rules seem certain.

"There will definitely be a bonus cap," said one official. "It's just a question of how much."
Should politicians be able to set limits on what bankers can be paid, if they are working for private institutions?

Could this lead to a brain drain from European banks?

Could this have the opposite effect, and result in less-competent people working in banking?

Rather than targeting bonus payments, should it not be enough to ensure banks are adequately regulated, that those individuals regulating them are paid salaries that are attractive to people with good banking experience, and that if banks fail, they are allowed to fail?

Is this proposal a populist measure or does it make sense?

Are there other sectors which should have pay-caps imposed on them?

EU moves closer to caps on banker bonuses - RTÉ News
 

stopdoingstuff

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The right thing to do would be to cap their bonuses by not bailing them out so that they lose their jobs.
 

Absurdo

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I'm all for capping bankers
 

Hewson

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The term 'brain drain' and the word 'bankers' should not appear in the same sentence. Anyway, yes, bankers' bonuses should certainly be capped. Expecting the fine body of men and women in finance to behave morally is akin to letting a raving aloholic have free rein in your pub for the night and expecting him to drink nothing but tonic water.

The other band of renegades who need capping (though I'd draw the line at knee-capping, just) are politicians.
 

RichardDeClare

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Taxing banker's bonuses will not change anything. Firms will offer increased salaries to get around any cap,or offer one of the other incentives that any legislation on this matter will no doubt allow in lieu of cash bonus.

You be better off splitting up banks and thus reduce the moral hazard that allows banks to pay massive bonuses in the first place!
 

ShoutingIsLeadership

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The term 'brain drain' and the word 'bankers' should not appear in the same sentence. Anyway, yes, bankers' bonuses should certainly be capped. Expecting the fine body of men and women in finance to behave morally is akin to letting a raving aloholic have free rein in your pub for the night and expecting him to drink nothing but tonic water.

The other band of renegades who need capping (though I'd draw the line at knee-capping, just) are politicians.
Your pro-life credentials are shining through there, Hewson :)
 

tigerben

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Bankers will just be giving more expenses , more pension with housing and cars to sweeten deals. Bankers have learned that they run the show, and as much s politicans think they're the elected ones And make the rules, banks know rules can be broken and tabs put on taxpayers.
 

Hewson

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Your pro-life credentials are shining through there, Hewson :)
No figure will ever be put on the damage done by the world's bankers, hedge funds, investment banks and inept/corrupt politicians since 2008. And not just in financial terms either. The trail of misery, destruction, bankruptcies, suicides and consequent personal repercussions is too big and too widespread to quantify.

Suffice to say that bonuses for any of the above group should be off the table for several decades, centuries even.
 

ibis

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The specific point about bonuses as opposed to salaries or perks is that they're performance-related. While that's usually sensible, the effect in finance appears to be to make people chase ever-larger risks until everything blows up.
 

ShoutingIsLeadership

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No figure will ever be put on the damage done by the world's bankers, hedge funds, investment banks and inept/corrupt politicians since 2008. And not just in financial terms either. The trail of misery, destruction, bankruptcies, suicides and consequent personal repercussions is too big and too widespread to quantify.

Suffice to say that bonuses for any of the above group should be off the table for several decades, centuries even.
How much of that could have been prevented by adequate regulation and supervision?
 

stopdoingstuff

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The specific point about bonuses as opposed to salaries or perks is that they're performance-related. While that's usually sensible, the effect in finance appears to be to make people chase ever-larger risks until everything blows up.
The other annoying feature is that there is no clawback. They can be long gone before the risks they built up finally explode.
 

Hewson

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How much of that could have been prevented by adequate regulation and supervision?
Most of it, and not just in Ireland. Our friends in Germany have to take their share of the blame for pushing for too-low interest rates in a time of high growth. We were unlucky enough to be governed at the same time by cowboys whose idea of planning was to let tomorrow take care of itself.
 

ShoutingIsLeadership

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Most of it, and not just in Ireland. Our friends in Germany have to take their share of the blame for pushing for too-low interest rates in a time of high growth. We were unlucky enough to be governed at the same time by cowboys whose idea of planning was to let tomorrow take care of itself.
So, is capping bonuses really going to address the problem?
 

jake76

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Capping of bankers pay is a bad idea, banks should not have limited liability, directors and senior executives should be personally liable for losses.
 

Hewson

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So, is capping bonuses really going to address the problem?
A more pertinent question would be why should the culprits be rewarded for their vandalism.

Bonuses are an incentive to push the acceptable bounds of profit-making and that's largely what landed us in the poo.
 

Amnesiac

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The specific point about bonuses as opposed to salaries or perks is that they're performance-related. While that's usually sensible, the effect in finance appears to be to make people chase ever-larger risks until everything blows up.
Is this not perfectly rational when the state steps in every time things get hairy? Low-probability disaster events will not factor into the thinking of bank executives if they enjoy all of the benefits of success and the taxpayer eats the downside losses. We have done nothing to change this mentality. Banks are still too big to allow fail, and an implicit guarantee still exists.
 

friendlyfire

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We had some of the foremost financial experts on the planet they really were so good they used 19th century banking practices.They didn't need computers,paperwork... well not so much,risk assessment ....hell no.

Huge bonuses....check!
 

Amnesiac

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The other annoying feature is that there is no clawback. They can be long gone before the risks they built up finally explode.
Your point is right on the money. Problems in financial institutions are generally slow to emerge. Ensuring that employees are rewarding for prudent management of long-term value is the key.

Remuneration in the form of long-maturity (e.g. 10-year) options is an idea. However, it would be less of a reward in that the money will be worth less in 10 years time, and they will also have to stay alive until then. The latter may be a real consideration if you're a bank executive in your sixties.
 
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