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Bank CEO Compensation Around The World at Trader’s Narrative

Bank CEO Compensation Around The World

Executive compensation is one of the glaring issues at the heart of the financial crisis. We haven’t even come close to dealing with it in a meaningful way as the powerful Wall St. lobby moved quickly to throw obstacles in the path of any regulation or even discussion of the matter.

The most common argument that is trotted out to defend the obscenely disproportionate compensation packages on Wall St. is that the bonuses, salaries and stock options are needed to keep ‘talent’. But no one is able to ask how ‘talent’ that nukes the global financial system and brings down once mighty investment banks is worth even a shiny dime.

A look at the global bank CEO compensation also throws cold water on this non-sequitur:

banking CEO compensation international data Sept 2009
Source: Reuters

The only non-US bank that approaches lofty compensation levels is Santander. Since the graph above shows the compensation and the market capitalization of each bank, I thought it would be interesting to show the relative compensation, so here is a graph of that:

bank ceo compensation relative to market capitalization

There is incredible variation in executive compensation around the world with many very large banks being run by CEOs who are paid next to nothing (compared to US counterparts). So are they stupid to stick around? or is the North American mindset wrong?

I’m not really in favor of a government cap on compensation. But regulation is needed to bring salaries and bonuses in line with performance. And they clearly are not right now. The industry itself nor the market is going to deal with the agency issue at the heart of the matter. Shareholders theoretically are in control but in reality, there is so many layers of bureaucracy insulating them and the compensation committees appointed by the CEOs that no one really believes in this free market fairy tale anymore. A third objective party needs to step in and rescue Wall St. from themselves for the good of all.

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2 Responses to “Bank CEO Compensation Around The World”  

  1. 1 Slithy Tove

    First, leave out China. China is a dictatorship. They can pay whatever they want, and hang the bankers if they don’t perform well.

    Second, market capitation isn’t relevant. What is relevant is how much profit the bank makes. If the bank is highly profitable, it justifies high salaries for those who create bank policy and execute it. They are earning their way, they are eating their own cooking. But if the bank isn’t very profitable, it has no business paying superb salaries to less than superb managers.

    BTW, despite my occasional negative comment, I really enjoy and appreciate Trader’s Narrative. You put a lot of effort into it, you don’t cover the same ground as everyone else, and now and then you turn up a gem. Thanks!

  2. 2 Babak

    Slithy, if the bank is highly profitable, that is reflected in the marketcap don’t you think? also, which profit? the one before all the charges? the operating one? the forward estimate? etc. you get my drift. It is a slippery thing to measure, especially across the board and across diverse acct standards.

    Thanks for the sentiment, I’m glad you are enjoying the blog. Keep the occasional criticism coming, while pats on the back are nice, slings and arrows keep me on my toes ;)

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