Why Stephen Hester's £963,000 bonus is a distraction

Quibbling over the bonus paid to the RBS boss is simply gesture politics.

Stephen Hester, the head of the Royal Bank of Scotland, is to receive a bonus of £963,000. Predictably, this has triggered outrage among the commentariat, and harsh condemnations from politicians.

Liberal Democrat Foreign Minister, Jeremy Browne, told Question Time that Hester should decline the bonus as "a question of honour", while the shadow business secretary Chuka Umunna told the Today programme that Hester's salary of more than £1m should be sufficient reward for doing a good job.

Outrage around bonus season is becoming something of an annual tradition. But what purpose does it really serve? In the last few hours alone, I've heard three radio discussions of the ins and outs of Hester's package. It's half what he received last year; it will all be paid in shares; he could have been earning much more in another job; he wasn't even a banker at the time of the crash.

There is no disputing that the sums of money involved are grotesque. The fundamental injustice that bankers continue to receive ludicrous sums of money while jobs are being lost across the country prompts a visceral anger in many people. This very real, very widespread rage is what politicians are attempting to tap into when they indulge in a spot of banker-bashing.

One point that comes up repeatedly is that of fairness: why should these people earn more than doctors, nurses, civil servants, or engineers? It's a valid question, but it is not answered by removing one banker's bonus. Scoring political points by forcing one individual to refuse their reward package does not solve the wider problem of sky-high financial remuneration.

In this summary of the arguments for and against banker's bonuses, Dr Ruth Bender of the Cranfield School of Management explains that change to pay packages must be consistent:

We cannot change pay for just some bankers -- just in the UK, or only in certain banks -- any more than we can change the traffic rules so that blue or red cars have to drive on the right! A few years ago I did research into executive pay, interviewing the great and the good to determine why they got paid what they did. One City CEO explained it very simply. He said that if "they" were to halve the pay of all the CEOs in the City, then no-one would bat an eyelid. But it would have to be all the CEOs. If even one individual retained his high compensation, then the others would demand parity.

RBS is a taxpayer-owned bank, and it is fair that it is subject to extreme scrutiny. But this forensic focus on the remuneration package of Hester, who is, at the end of the day, just one person, risks acting as a distraction from deep systemic, structural problems. Both EU and UK regulation have so far failed to addressed these deeper issues, preferring to focus on the symptoms rather than the causes.

This Economist blog summarises what some of these problems are:

Taxpayers' underwriting of bankers' operations -- socialised risk and privatised reward -- is one clear reason for excessive returns. The cartel-like structure of high-end banking, driven by both regulatory barriers to entry and economies of scale, also enables the sector to generate rents.

But in investment banking, the biggest cause of high pay could be clients' principle-agent problem and the "natural" inefficiency of big deals. When a management team chooses an investment bank, they likely to be more concerned about protecting their reputation ("no one got fired for hiring Goldman Sachs") than saving money. And in a multibillion dollar deal, shareholders are unlikely to kick up a fuss over a few million dollars wasted on expensive bankers. As a banker interviewed by the New Yorker put it, "[if] you are going to do a five-billion-dollar deal...Are you really going to fight about whether a certain fee is 2.5 per cent or 3.3 per cent?"

So, no, objectively Hester shouldn't be receiving such a high bonus. But it is the system which makes this compensation expected -- necessary, even -- that should be looked at, not the details of the payment received by one man, in one year. Such gesture politics do nothing to solve the underlying problem. We should be more worried about that fact that no-one appears willing to undertake the fundamental restructuring of the financial sector that would ensure fairness and prevent another financial crash.

Samira Shackle is a freelance journalist, who tweets @samirashackle. She was formerly a staff writer for the New Statesman.

Getty
Show Hide image

Junior doctors’ strikes: the greatest union failure in a generation

The first wave of junior doctor contract impositions began this week. Here’s how the BMA union failed junior doctors.

In Robert Tressell’s novel, The Ragged-Trousered Philanthropists, the author ridicules the notion of work as a virtuous end per se:

“And when you are all dragging out a miserable existence, gasping for breath or dying for want of air, if one of your number suggests smashing a hole in the side of one of the gasometers, you will all fall upon him in the name of law and order.”

Tressell’s characters are subdued and eroded by the daily disgraces of working life; casualised labour, poor working conditions, debt and poverty.

Although the Junior Doctors’ dispute is a far cry from the Edwardian working-poor, the eruption of fervour from Junior Doctors during the dispute channelled similar overtones of dire working standards, systemic abuse, and a spiralling accrual of discontent at the notion of “noble” work as a reward in itself. 

While the days of union activity precipitating governmental collapse are long over, the BMA (British Medical Association) mandate for industrial action occurred in a favourable context that the trade union movement has not witnessed in decades. 

Not only did members vote overwhelmingly for industrial action with the confidence of a wider public, but as a representative of an ostensibly middle-class profession with an irreplaceable skillset, the BMA had the necessary cultural capital to make its case regularly in media print and TV – a privilege routinely denied to almost all other striking workers.

Even the Labour party, which displays parliamentary reluctance in supporting outright strike action, had key members of the leadership join protests in a spectacle inconceivable just a few years earlier under the leadership of “Red Ed”.

Despite these advantageous circumstances, the first wave of contract impositions began this week. The great failures of the BMA are entirely self-inflicted: its deference to conservative narratives, an overestimation of its own method, and woeful ignorance of the difference between a trade dispute and moralising conundrums.

These right-wing discourses have assumed various metamorphoses, but at their core rest charges of immorality and betrayal – to themselves, to the profession, and ultimately to the country. These narratives have been successfully deployed since as far back as the First World War to delegitimise strikes as immoral and “un-British” – something that has remarkably haunted mainstream left-wing and union politics for over 100 years.

Unfortunately, the BMA has inherited this doubt and suspicion. Tellingly, a direct missive from the state machinery that the BMA was “trying to topple the government” helped reinforce the same historic fears of betrayal and unpatriotic behaviour that somehow crossed a sentient threshold.

Often this led to abstract and cynical theorising such as whether doctors would return to work in the face of fantastical terrorist attacks, distracting the BMA from the trade dispute at hand.

In time, with much complicity from the BMA, direct action is slowly substituted for direct inaction with no real purpose and focus ever-shifting from the contract. The health service is superficially lamented as under-resourced and underfunded, yes, but certainly no serious plan or comment on how political factors and ideologies have contributed to its present condition.

There is little to be said by the BMA for how responsibility for welfare provision lay with government rather than individual doctors; virtually nothing on the role of austerity policies; and total silence on how neoliberal policies act as a system of corporate welfare, eliciting government action when in the direct interests of corporatism.

In place of safeguards demanded by the grassroots, there are instead vague quick-fixes. Indeed, there can be no protections for whistleblowers without recourse to definable and tested legal safeguards. There are limited incentives for compliance by employers because of atomised union representation and there can be no exposure of a failing system when workers are treated as passive objects requiring ever-greater regulation.

In many ways, the BMA exists as the archetypal “union for a union’s sake”, whose material and functional interest is largely self-intuitive. The preservation of the union as an entity is an end in itself.

Addressing conflict in a manner consistent with corporate and business frameworks, there remains at all times overarching emphasis on stability (“the BMA is the only union for doctors”), controlled compromise (“this is the best deal we can get”) and appeasement to “greater” interests (“think of the patients”). These are reiterated even when diametrically opposed to its own members or irrelevant to the trade dispute.

With great chutzpah, the BMA often moves from one impasse to the next, framing defeats as somehow in the interests of the membership. Channels of communication between hierarchy and members remain opaque, allowing decisions such as revocation of the democratic mandate for industrial action to be made with frightening informality.

Pointedly, although the BMA often appears to be doing nothing, the hierarchy is in fact continually defining the scope of choice available to members – silence equals facilitation and de facto acceptance of imposition. You don’t get a sense of cumulative unionism ready to inspire its members towards a swift and decisive victory.

The BMA has woefully wasted the potential for direct action. It has encouraged a passive and pessimistic malaise among its remaining membership and presided over the most spectacular failure of union representation in a generation.

Ahmed Wakas Khan is a junior doctor, freelance journalist and editorials lead at The Platform. He tweets @SireAhmed.