Paying the piper

Europe's pay populism makes a useful distinction

European pay populism is going this way and that. Swiss voters deliver a resounding "no" to limiting executive pay over the weekend and then days later the Dutch strive to outdo even the stingy European Commission in seeking to cap banker bonuses. The distinctions are understandable, though. If there is an instinctive aversion to regulating pay, it isn't strong enough to overcome anger at the rewards that continue to be given to those working in the taxpayer-backed finance industry.

Brussels has taken the lead in post-crisis compensation curbs. It wants almost any banker's bonus to be restricted to no more than 100 per cent of salary. That shocked the industry, but didn't prevent country-level uprisings. Switzerland may not have ratified a referendum to limit salaries of senior managers to 12 times that of a company's lowest wage, but the non-European Union nation has staged a successful clampdown on corporate golden handshakes.

The Netherlands is now aiming to restrict banker bonuses to 20 per cent of base salaries. The messages aren't so mixed, though. The Swiss position is instinctively fair and meritocratic. Commonsense dictates that multimillion-dollar payoffs for doing little to no work are undeserved. Likewise, an executive who takes on the responsibility of leading a company and succeeds in creating wealth and prosperity for owners and workers may deserve to be paid a high multiple of lower earners.

It's easy to understand why finance would remain an outlier in the equation. Reform of Europe's banking system is still a work in progress. Banks generally remain poorly capitalised and hard to resolve in a crisis, meaning they remain a big potential burden to their respective citizenries. And yet pay in investment banking remains much higher than other industries, even if compensation-to-revenue ratios have ticked down slightly.

The banking sector has shown little self-restraint compared to its outsized role in a near-systemic collapse. If financiers are unwilling to self-regulate their pay more stringently, they'll have to keep fighting off those who will see the need to do it for them.