Are the compensations of presidents and executives of banks and large corporations logical? It depends on the cases. However, they often create a comparative scandal, are generally poorly explained and, in some cases, even more poorly justified.
American banks operated less than normal in 2023, their profits fell by almost 45% year-on-year in the fourth quarter, due, among other things, to the consequences of the Silicon, Signature and First Republic crises: mishaps due to bad loans increased to 5 billion in last quarter and the government imposed on large companies a contribution of 16,000 million dollars to the deposit insurance fund.
But the purse strings of the heads of the major investment banks didn't notice anything, on the contrary. Goldman Sachs paid its CEO David Solomon $31 million (up 24% from 2022), despite the company having the worst of its last four years. And further illustrating the imperturbability of power: “Despite the negative impact of its strategies” on the company's short-term performance, the bank tried to justify the move by saying that Solomon “played a key role in putting it in a much stronger position.” . JP Morgan Posted Record Profits, Boosting Jamie Dimon 4%; Morgan Stanley earned 12,900 million (12,750 in 2022), but paid out much more, namely 17.5% (37 million) to its fired boss James Gorman.
The large Spanish banks performed much better (26,000 million profit), due to the increase in interest rates without bankruptcy consequences and without favoring depositors, as well as due to the direct subsidy of 4% banks' deposits ordered by the ECB. National centers. Therefore, some managers also favored the conventional benefits and those that fell from the sky, although to a lesser extent: Ana Botín (Santander) earned 12.2 million (4% more). And Carlos Torres (BBVA), 7.6 million (0.8%) after increasing profits to 8,019 million.
In the debate about the remuneration of bankers, they are usually compared with managers from other productive sectors and social classes. However, there is another discussion to be had that may be a priority. Does the compensation take into account any setbacks due to its own management, as in the case of the blocking of the Santander accounts of Iranian customers who were sanctioned for terrorism? There is no positive evidence.
This reflects the controversy following the Great Recession of 2008: the pursuit of short-term profit as a clear strategy (and based on the metric of many theoretically variable bonuses at the top) promotes risk that can become dangerous. Also for the public coffers, an implicit guarantee of an eventual rescue. For this reason, the Homeopathic Law 10/2014 on the Management, Supervision and Solvency of Credit Institutions of 2014 should be reconsidered and limited in practice to preventing the variable part of the remuneration from exceeding the fixed part (Article 34). It might be possible to harmonize some elements of remuneration systems – or limit them, for example for companies with a public presence, Article 35 – and ensure greater transparency of their information to the public.
In large companies there is also everything, including the reluctance to pass on poor results to senior management. It is true that Telefónica lost 892 million euros and cut its president José María Álvarez-Pallete by 6.9% to 6.32 million euros; Repsol earned 3,618 million, 25.5% less than in 2023, but its CEO, Iosu Ion Imaz, lost only 5% (to 3.9 million).
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