Despite a 30% increase in his own annual salary, global chief executive of Credit Suisse, Brady Dougan, has admitted that banker's pays have grown far out of proportion with shareholder returns.
After Credit Suisse recognised a fall in net profit in 2012, Dougan's pay packet jumped from 5.8 million Swedish francs ($5.8million) to SFr7.8 ($7.8 million). Upon his visit to Sydney however, Dougan defended his own pay rise, stating that the bank's reported profits were heavily affected due to fair value accounting adjustments on the bank's debt. He then claimed that looking beyond those adjustments, "operating earnings actually doubled" – giving him reason to believe that the levels of compensation for executive staff were in fact quite reasonable.
With current global financial unrest based on conditions in Europe, banker's remuneration remains a heavy topic for debate.
Whilst global concern regarding Cyprus continues, employment and consumer spending levels in other nations such as Greece or Spain still remain at record lows. It remains difficult to justify how the banks can afford to increase their executives' salaries by so much in these conditions.
Raising tension in the public even further, Credit Suisse has cut 2,300 workers since the beginning of 2012 after a major restructure of the investment bank, in order to save on costs. Having become Basel III compliant (which is an international banking standard that aims at ensuring banks have enough assets to protect against another global financial crisis), Dougan stated that "you have to do business differently", which gave reason for the job cuts.
Like Dougan, CEOs of Australian banks were also recipients of hefty bonuses and pay increases in 2012. Cameron Clyne of National Australia Bank (ASX: NAB) received a 12% pay increase to $8.67 million for the last financial year, while the ANZ's (ASX: ANZ) Mike Smith received in excess of $10 million. Meanwhile, Ralph Norris of the Commonwealth Bank (ASX: CBA) collected $8.64 million.
Since the beginning of 2012, our banks have also been guilty of offshoring over 1,700 jobs in order to save costs. Westpac (ASX: WBC) has been the main offender in this time.
Foolish takeaway
Upon his visit to Sydney yesterday, Dougan stated that in recent years banker's pay packets had been too high, and that "we need to get to a model where the sharing between the employees and the shareholder is more equal". Whilst costs have been cut in the banking sector banks, employees are losing their jobs and putting strain on the economy as a result. It is difficult to see justification in the salary and bonus increases across the executive boards.
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The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.
