There is an ongoing stereotype of a successful banker, who is rewarded with big money and other profits for every major accomplishment. And while Hollywood movies played a huge part in creating this picture, and some of the retro bankers would show their wealth off, it looks like we’re about to witness some changes when it comes to that, especially while yet another financial crisis is still being tamed.
We can of course imagine some of the best and biggest trading floors to be soaking with money, but 2020 has really highlighted the need for developing a responsible and sustainable new system. And we, following Andy Samu’s Disruption Banking piece, are not speaking of the financial abundance, but also a newly discovered social responsibility and the fact that the firms have to manifest moderation during such a turbulent time.
The wind of change in the bankers’ bonuses
But the concept of increased consciousness is not a new discovery, though. Back in 2018, Laurence Fink, BlackRock’s CEO and Chairman has brought up the topic of CEO pays. He stressed how there is a society’s expectation for the companies to serve some greater purpose. He also highlighted that the prosperity of the firm is now strictly connected to not only the financial results (as it was in the past) but also the contribution that it makes to society. Fast forward a few years, and it appears that Fink’s words have set the new trend that spreads not only among the CEO community but the whole banking and finances world.
Then, in 2020 the Covid-19 pandemic broke out and instantly changed the world. Just as it all started, Andrea Eria, the European Central Bank’s Chairman, has expressed how the Banks must, under all circumstances, do everything possible to be “extremely moderate” when it comes to the bonuses paid out in 2020. ECB was even considering stepping in and taking some actions if they observe something alarming.
Since then, Enria has spoken of the moderation multiple times and even highlighted the importance of Banks’ contribution to fighting climate change. His approach, as well as ECB’s recently appointed Head, Christine Lagarde’s, seems to be matching Fink’s concept perfectly. That is indeed the sign of the ongoing changes in the banking world.
The changes seem to be perfectly formulated by Andy Samu in just three points that characterize the future of the finances and the world in general:
- Climate change;
- Positive social contribution.
The market’s response
This triumvirate will now be carved in stone and more and more companies will have to reconsider their previous agenda. And it is not something in the phase of planning, as we’re witnessing more and more institutions across the world that really seem to be adapting to the new conditions. For instance, the Bank of England urged English companies to provide HM Treasury with a special letter, where they would be committing to the idea of restraint when it comes to the dividends payments and other forms of distributing the capital, as well as the senior pays. This is only applicable to the corporations which are using Government’s loans, but it is still a huge leap into the future.
As always, it is not hard to find some nonbelievers, who will deny the new, progressive agenda and will try to keep on going on their own terms. These “Mavericks”, like Samu calls them, would normally be scrutinized like all the world’s CEOs. According to Disruption Banking there are still a lot of lessons to be learned from the Financial Crisis. Even with some Vickers Report and Liikanen Report’s recommendations, some bonuses will still be high – especially in the investment banking sector, as the undertaken risk seems to be justifying them.
There are, and have been a lot of eyes on Goldman Sachs, as during the Financial Crisis they refused to help AIG – the insurance industry giants. This behavior was assessed as grievous and money-oriented and even today it is condemned. The new way of thinking, neatly summed up with Samu’s triumvirate, suggests that during the present crisis a lot of companies would act differently, given the same circumstances, as the new agenda really is gaining importance.
Years after Goldman Sachs’ infamous actions, the UK’s head of the company was heavily interviewed by the UK Parliament Select Committee for the company’s involvement with BHS. All that happened while the Committee was investigating Philip Green’s case. And as this wasn’t the major reason for Michael Sherwood’s departure from his role at Goldman Sachs, we can be sure, it wasn’t helpful for his reputation either.
To read more about Sherwood’s further actions, as well as about the current behavior of the biggest firms amid the new trend in bankers’ bonuses, visit Andy Samu’s original piece on Disruption Banking. To enter it, simply click on the following link: https://disruptionbanking.com/2020/05/21/extreme-moderation-or-restraint-how-will-bankers-bonuses-look-in-2020/