Bonus Issues

It’s not a good time for socialism. Having lost the greatest ideological debate of the 20th century, it looked to be making a brief comeback during the credit crunch. But now, defeat is certain at the avaricious hands of committed capitalists everywhere.

One of its last, futile acts of defiance was the recent US Congress vote to curb ‘excessive’ bank bonuses. Ironically, as laws go, it was actually quite a good one. By giving shareholders the right to non-binding votes on executive pay, it shifted the skewed balance of power slightly away from management and more in favour of shareholders.

The problem is that although the effect was desirable, the motive was decidedly scurrilous. In service economies like the US and UK, the price of people is the primary signal for allocating capital.

Like a modern slave market, the specimen with the most robust MBA commands the highest price at auction. Once you start meddling with bonuses, the runt of the litter starts commanding the same distorted price as the chap with the Atlas physique.

The most encouraging sign is that, now that banks like Goldman Sachs, Barclays and HSBC have started reporting profits akin to the loot of old, they are shaking off the shackles of shame imposed on them by an envious public, and returning to their old ways. As Barclays defiantly announced the return of bumper bonuses, a line was drawn in the sand. Regulators blinked. Capitalism won.