Top leaders soft-pedal issue of curbing bankers’ pay

LONDON: For all the tough talk about squeezing the pay of irresponsible bankers, leaders of the world’s most powerful countries have done little to stop Goldman

Sachs or Citigroup from paying tens of millions of dollars to their star traders.

Those leaders have, however, agreed to work far more closely in setting goals for global economic stability and in creating what Gordon Brown described as a “crisis prevention system” intended to sound an early alarm to avert future financial meltdowns.

Through regular powwows, leading nations will gather and discuss their economic policies to smooth out, for example, the present pattern of US consumers overspending while China builds up a huge trade surplus. “We are not going to walk away from the greatest economic crisis since the Great Depression and leave unchanged, and leave in place, the tragic vulnerabilities that caused this crisis,” said US treasury secretary Timothy Geithner.

One of those vulnerabilities, according to many sceptics, is the tendency of financial institutions to offer bonuses to traders taking huge gambles on the markets — including the $100m payout to a Citigroup trader, Andrew Hall.

A draft agreement circulating at the G20 bans “guaranteed” bonuses and requires 40 per cent to 60 per cent of senior banking executives’ pay to be deferred for three years to discourage short-term risk. But there was no cap on pay, a specific objective set out by EU countries last week. Yet France’s president, Nicolas Sarkozy, opted against walking out of Pittsburgh’s convention in protest.

“These don’t seem like tremendous changes,” said Stephen Hall, a Wall Street pay consultant. “These don’t sound anywhere near as devastating as some people had been fearing.” The framework will require that 50 per cent of top executives’ pay is in shares and that their earnings will be subject to “clawback” if business goes horribly awry.

The UK finance minister, Alistair Darling, argued that the measures were, in fact, more draconian than any pay cap because “people would be able to get round the rules, they would arrange to be paid somewhere else in the world.” Britain and the US take a view that megasalaries are tolerable as long as they are structured to avoid incentivising irresponsible short-term risk. But for other EU states, the sheer scale of pay deals is a problem — and they were set to leave the summit disappointed.

The G20 did agreed that banks need to be better capitalised to avoid the evaporation of confidence that led to the demise of Lehman Brothers. Developing countries will get a greater voice in the International Monetary Fund which will, in turn, have a role in reviewing whether the G20 are standing by their economic promises.

But some economists argue that any smoothing of global trade is impossible without addressing imbalances in exchange rates, an issue largely off the table for the US and China.