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Morning Line: Guess who is pushing up pay in the City

By Lawrence Lever | 10:06:54 | 10 August 2009

Last week, a friend who knows about these things complained how in some cases basic salaries were being trebled (his concern was losing his people to investment banks).

Separately, someone else told me how he and his colleagues had been called into a room and, to their surprise, given the news that they were getting very large basic pay rises. Again, an investment bank.

Both instances relate to what is called ‘the sell side’; in other words; the part of investment banks that services (‘sells to’) fund management groups.

In the days before the credit crunch and the drive to control reckless bonus-paying, it was fairly common for sell-side analysts to be on low basic salaries (low in this context could mean £150,000, if not more!) but then to be able to earn several times this salary as bonus payments.

This week sees the Financial Services Authority publish its guidance on executive bonus payments. Hector Sants, the CEO of the FSA, flagged it up on the BBC’s Andrew Marr show yesterday. In essence, he highlighted three potential problems with bonus payments.

The first is their potential to ‘incentivise people to take unreasonable risk’ and to pay out so much money that they destabilised the institution itself (a bit like the wages of some Premier League soccer clubs).

The second problem, ‘which occupies a lot of media debate’, said Sants, was that ‘somehow or other are those individual payments unreasonable, particularly at a time when obviously the state sector, the taxpayer, is extending quite a bit of support to banks’.

The third is a kind of moral outrage point. How can these people earn so much money when we, the taxpayer, have bailed them out and continue to do so? The FSA said Sants was only concerned with the first two.

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Comments (7)

stuart cropper - Living in a world of them and us

12:30 | 10 Aug 2009

Our world is layered by class and if you can get on the bandwagon .Get on.

Walk down streets in briton you will see the ordinary people going about their lives trying to manage many on low incomes .we are all the time being controlled by our circumstances .When anyone reads and hears of the school ties taking vast sums of money out of the system you start to think about the equality in life and is it worth putting your vote in the ballot box so that this can continue in its present form .

This has gone on since currency became valid and the lust for power that money gives becomes more relevant in the society of today .

sjc

John H - Salaries

13:04 | 10 Aug 2009

Stuart Cropper's comments are quite right, life is just like that and under normal circumstances there are ways of moving up a layer; by working harder, by being smarter or by being lucky. Present circumstances are different; we have a group of people, the financiers, who are raking off lots of other peoples' i.e. taxpayers' money without any proportionate contribution to society.

What an economy needs is wealth creation, not a bunch of highly paid smart alecs shuffling money around and taking a rake off every time it passes them.

Chris B (Slough UK) - Bring It On

13:09 | 10 Aug 2009

Clearly there is little need for stimulus in the form of Quantitative Easing.

Eventually the Government will realise the more they pump in the more the Banks will just bleed it away. Still they are all in it together, so why should they care about the little people that inhabit their country?

The transfusion won't work until the underlying problems are fixed, the bleeding continues! We are only at the start of the Great Depression II.

Everyone knows the curreny rally is not sustainable, it is just what 'people' thought should happen and they've all gone along with it. Taking less bad news as good news if sheer stupidity. The trend is ultimately down and the air is already getting very thin at these price levels.

The last monthly job losses of a 1/4 of a million people is some presented as good news....jeez that won't effect anything will it?

The compounding effects of these continued job losses takes time to filter through, but you can be sure of some things:

Less consumer spending, more mortgage arrears and foreclosures, more job losses as demand falls back. The economies are still contracting and that is not Bull market territory. Of course if everyone keeps buying stocks regardless, then the prices will continue upwards naturally. The P/Es are already showing the glaring folly of the hiked up share prices. Look out below, this could well be the winter of much discontent!

phil wand - gloom and doom mongers

14:27 | 10 Aug 2009

Wow!!!!!!!

Such gloom and doom are you sure it's all that bad ????????

MIKED - Devaluation

15:10 | 10 Aug 2009

Replace the wording Quantitative Easing with devaluation and its not hard to see the country has a problem, a big problem.

Chris B (Slough UK) - Boom and Bust

22:30 | 10 Aug 2009

Here is some text from Bill Bonner of the Daily Reckoning. You can sign up for emails from them:

"Harvard professor Ken Rogoff says it will take 6-8 years for households to reduce their debts to a more sustainable level. Let's see. We reported on Friday that the big upswing in credit over the last 60 years added about $35 trillion in excess debt to the system. But not all of that is private debt.

Taking the period of the bubble years, in 2000 total debt in the United States came to $26 trillion. Now, it's twice that amount - $52 trillion, of which $38 trillion is private...or more than two and-a- half times GDP. At this level, the private debt absorbs roughly one out of every seven dollars in consumer earnings - in interest and principal payments.

If the private sector undertook to reduce debt back to 2000 levels, it would mean eliminating all the debt accumulated during the bubble years - or about $19 trillion. How long will it take to pay down, write off, inflate away and otherwise shuck $19 trillion? Well, inflation is running below zero - so that is not now a source of debt reduction. Between write-offs and pay-downs, about $2 trillion has already been cut - over, very roughly, the last 2 years. At least the math is easy. At that rate, it will take 19 years. "

John - LEADERSHIP

23:23 | 10 Aug 2009

Where is Gordon when you need him?

Will he be back, do we care?

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