The announcement yesterday that RBS, 70% owned by the taxpayer, has just offered shares worth £5m as bonuses to 4 of its top bankers is really provocative, following on from the £700,000 a year pension which the Board recently offered to the ousted chief executive Sir Fred Goodwin. It’s true that critics have complained that the performance criteria for these awards are not sufficiently stretching, but that’s not really the main point. The real point is that a bank which lost nearly 95% of its value in the stockmarket because of the almost insane recklessness of its now disgraced chief executive doesn’t deserve to have bonuses paid at all when it has already cost the taxpayer no less than £45 billion to bail the bank out in the first place. The claim of Stephen Hester, the new chief executive, who is himself being paid £1.2 million a year, that the RBS has lost top staff as a result of the clampdown on bonuses is not an argument for the restoration of the discredited bonus culture, but rather an admission that the market cannot produce a fair system of rewards without wholly unjustified excesses. But there are deeper issues here too which are not being addressed.

The most important question is not even being asked. What level of reward should bankers get? Twenty years ago they were paid broadly similar remuneration to leading executives in industry; now they are paid substantially more on average, largely reflecting the dominance of finance in neo-liberal capitalism. But that too conceals the real issue which is that these colossal excesses of pay and associated benefits (the latter often several times greater than the former) are linked, not to the effort or skill required relative to that in other occupations, but rather to the magnitude of the financial transactions being managed.
A proper and fair pay system would reward people in different occupations on the same range of criteria which should take into account among other considerations skill, commitment, aptitude, and experience. It should not give undue weight (which banking and many industrial boardrooms do) to the relative financial valuation of the commodities or transactions in which the organisations happens to be engaged. Of course that is a rejection of one of the fundamental tenets of capitalism that value as assessed in the market is all that matters. But what fails to recognise is that the market is not an objective calibration of personal worth, but rather a highly idiosyncratic setting dominated by the rich and powerful and very largely reflecting their own very particular interests. The market is not a ‘natural’ entity; it is the creature of the political decision-makers who dominate it.
Clearly a fair pay framework will never be created within a capitalist market system. Self-regulation by the bankers and the CBI will never be objective and balanced any more than self-regulation by MPs has turned out to be. Sadly, no group in society can be trusted to decide equitably what it itself ought to be paid. We badly need a Pay Commission, on the back of a public debate, to determine broadly what is the range of pay scales that might be appropriate for different occupational grades, from the bottom to the top, in the light of the spectrum of capabilities needed for the job. Obviously such guidelines could only be broadly indicative, certainly not prescriptive in any way, but they would at least introduce a degree of objectivity and balance which is often wildly absent both at the top and the bottom of the pile. And a fairer paid Britain with much greater transparency would be a more contented Britain, with far less of the social pathology that goes with ballooning inequality.

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