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Bankers' pay and the French
More égalité, less liberté
Aug 13th 2009 | PARIS
From The Economist print edition
France is pushing for a global crackdown on bankers’ bonuses
ON AUGUST 6th France’s prime minister, François Fillon, summoned
the country’s most senior bankers for a scolding after it emerged that
BNP Paribas, its biggest bank, had set aside €1 billion ($1.4 billion) for
bonuses so far in 2009. Bonuses are back in vogue throughout the
industry but are proving particularly contentious in France. The leader
of the opposition Socialist Party said the bonus plan was scandalous
and BNP’s lowest-paid employees protested outside its headquarters.
France’s bank bosses will get another drubbing over pay in a meeting
with the president, Nicolas Sarkozy, on August 25th.
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BNP can justly claim to have been unfairly treated. Its bonus pool is
small by comparison with sums recently announced by some foreign
rivals. As the Bank of France pointed out, the bonus plan complies
with rules introduced in February at the behest of Christine Lagarde,
the finance minister, to ensure that the structure of bankers’
compensation does not encourage excessive risk-taking. BNP and its
peers have agreed to stop offering guarantees of bonuses beyond one
year, to pay bonuses out of profits rather than revenues, to adjust
payments to reflect the risks taken and to defer a share of variable compensation so that bonuses can be
clawed back if losses materialise.
Public anger is fuelled by the fact that the government injected a total of €10.5 billion into the six biggest
banks in 2008; more money was made available this year. In most cases, however, banks accepted
government funds not to stave off collapse but to boost lending to the real economy. And the government
is earning interest at a tidy 8% on its money. “The whole affair shows how the French suffer from a lack of
understanding of economics and of banking in particular,” says Guillaume de Saint Seine, a banker in the
Paris office of Leonardo & Co, a boutique investment bank.
French bank bosses may yet have some complaints of their own for Mr Sarkozy when they meet. They
hoped other countries would implement similarly tough new rules on bankers’ pay, as recommended at
the meeting of G20 countries in London in April. Yet some foreign competitors are once again offering
multi-year guaranteed bonuses to lucky employees. Barclays Capital, the investment-banking division of
Barclays, has admitted awarding such packages to a handful of senior staff. Citigroup, Bank of America
and Nomura are also reportedly offering bonuses guaranteed for more than one year.
“If the new guidelines on pay remain specific to France, that could be an issue for the competitiveness of
French banks,” says Philippe Tibi of AMAFI, a trade group for the French securities industry. Ms Lagarde
plans to use the next G20 meeting in Pittsburgh in September to push other countries to clamp down on
controversial pay practices. On August 12th Britain’s Financial Services Authority published a long-awaited
code of practice on remuneration which, among other things, frowns on bonuses that are guaranteed for
more than one year. Whether that appeases France’s angry mob is another matter.
Copyright © 2009 The Economist Newspaper and The Economist Group. All rights reserved.
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