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Uproar over excessive executive pay intensifying in Britain

Bank of England Governor Mervyn King gave a speech last spring denouncing the hubris of bankers. That same day, the British bank Barclays disclosed a bonus of £21 million, or about US$38 million, to its president Robert Diamond for last year, despite a £1.6 billion write-down for the year.

King followed up his criticism of the excesses of the City of London, as the financial district is known, by choosing not to accept an increase in his salary of £290,000.

By comparison, the outsize personality and bonuses of Diamond, the US-born chief of Barclay’s investment banking business, have made him a visible symbol of a Wall Street ethos that has taken root in the financial district.

Such contrasts have fueled a growing uproar — led by British Prime Minister Gordon Brown and joined by union leaders and theologians — over how best to curb a culture of escalating pay packages that some believe pushed bankers to take excessive risks.

On Monday, the government’s announcement of the nationalization of the mortgage lender Bradford & Bingley and an industry estimate that 12,000 finance jobs would be lost in the coming months only added to an angry reaction against the City’s financiers and a sense that they have led the country astray.

Dissatisfaction over high pay, business failures and US-style laissez-faire capitalism has been sweeping across Europe for some time, but it has been given new impetus as investors and politicians struggle to make sense of a credit vise that tightens by the day.

Even before the latest tumult, steps were taken in the Netherlands and France to limit excessive compensation, and the issue is back on the agenda when European finance ministers meet next Monday in Luxembourg.

In the US, outrage among many voters over the prospect of bailing out Wall Street executives played a role in the surprising rejection on Monday of a US$700 billion financial rescue plan in the House of Representatives.

But the vitriol has been particularly bitter in Britain, which, before the arrival of Margaret Thatcher as prime minister in 1979, was led by Labour and Conservative governments that sought to rein in capitalism rather than unleash it.

It seems touched as well by a sense of schadenfreude as bankers who once lived so high are being brought low.

“It is in our psyche — we always knock success,” said Vic Daniels, a former banker who runs a Web site, hereisthecity.com, that tracks the foibles, appetites and bonuses of London’s financial elite. “Who are the most hated football teams? Manchester United and Chelsea. Why? Because they are the most successful. The Brits just don’t like the in-your-face winners.”

At his party conference on Sunday, Conservative Party leader David Cameron noted the public mood by expressing support for a closer examination of how bankers are paid. But mindful of the party’s base, Cameron also warned against excessive bashing.

As it is, the pay of top bankers in Britain and across the continent does not approach that of chief executives in the US. Fred Goodwin, chief executive of Royal Bank of Scotland, was paid £4 million for last year. By comparison, Richard Fuld, chief executive of Lehman Brothers, was paid more than US$40 million last year just months before his company collapsed.

Now Diamond, who took a pay cut last year and is leading Barclay’s purchase of some of the best parts of Lehman, is preparing to open an office in Lehman’s former headquarters in New York.

The economic benefits of the long boom in the City of London are clear: The financial sector contributes 10 percent to Britain’s gross domestic product. But the conspicuous displays of consumption — £44,000 wine tabs for bankers in their £20 million and £25 million homes bought by hedge fund executives — stick more firmly in the collective craw as mortgage companies collapse and short-sellers circle.

“We have all gone to this temple called money,” decreed the Archbishop of York at a dinner last week put on by an aptly named trade group, the Worshipful Company of International Bankers. “We have all worshipped at it. No one is guiltless.”

Indeed, this resistance to the brazen ways of financiers dates back more than 100 years, to the late 19th century, when the landed English gentry expressed their revulsion at the spendthrift ways of plutocrats from abroad who suddenly appeared at the dinner tables of British country homes.

“There might as well have been a Goddess of Gold erected for overt worship,” one hostess was quoted as saying in The Decline and Fall of the British Aristocracy by David Cannadine.

Some peg the rise of the bonus culture to 1986 when fixed commissions were abolished and the doors opened for US brokerage houses to set up shop in London. Subsequently, the idea of banks taking on more risk and getting paid for it became widespread.

“There was none of this frantic trading and multimillion payoffs,” said George Blakey, who worked as a stock broker in the City from 1966 to 1990 and has recently written a history of the London stock market.

“The function of a stock market was to raise capital for industry. But then our old companies were taken over by these big pushy banks and it all became a crazy capitalist casino,” he said.

Still, even with the outcry over bonuses, the British financial scene remains devoid of a human symbol to define the public distaste.

While Diamond may come across as more assertive than most on the City’s stage, his habits and attitudes pale in comparison with major figures on the other side of the Atlantic. He has not thrown himself a US$3 million 60th-birthday party, as did the buyout king Stephen Schwarzman, chairman of the private equity firm Blackstone Group. That event in February of last year came to epitomize an era of excess.

“We have a prudish attitude toward people making too much money,” said Stuart Fraser, a top official at the City of London. “But our financial services industry has to remain competitive. We can’t have heavy-handed regulation.”
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