The Advisors' Blog

– Laura Thatcher, Alston & Bird

I want to put into context a quote of mine that you may have seen in this Reuters article relating to the G-20 summit discussions on bankers compensation. The quote does not all at represent my attitude or point of view about pay in general.

While the quote was accurate, it was in reply to a question about a list of 18 of the largest banks in the world (by market cap) and the reported 2008 compensation of their CEOs. My comment to the reporter related to comparing the compensation of the CEOs among that group of banks. I was remarking that there is a stark contrast between the $230,000 CEO pay at the named Chinese banks and $35+ million at two of the U.S. banks and the $5-13 million at the listed banks in Australia, Argentina, Canada, Italy and Spain.

In comparison, the $230,000 seemed “basically nothing” (less than 1% in some cases) and I was questioning whether the reported compensation numbers were comparing apples to oranges. It seemed to me that the Chinese compensation numbers were so far off the mark in terms of the peer group of banks that it was hard to imagine that we were looking at the whole picture. At the time, I did not realize (as the article points out) that the Chinese banks operate on an entirely different system – i.e., that their bank CEOs are government appointees, whose pay is capped at that level (exclusive of other benefits).

I am in no means an apologist for excessive compensation. Clearly something needs to be done to avoid pay systems that encourage excessive risk, regardless of the dollar amount. Nor, of course, do I think that $230,000 is “nothing” in compensation. However, as a pay cap for the world largest banks, that level is quite a far cry from the current compensation levels in the global peer group. This sharp contrast illustrates the difficulty in pursuing a universal pay cap strategy, as advocated by some in the G20. According to unofficial reports from last Thursday’s summit, the call for absolute caps on pay apparently has softened in favor of reforms that are designed to focus on controlling risks and safe-guarding the long-term health of the institution, which is in line with the recommendations of the Obama Administration.