Sarkozy Goes Where The FSA Fears To Tread

While executive pay has taken a rather misleading headline billing in the popular imagination as to why the recession happened, its nevertheless potentially damaging to companies when done badly. Plus, the sight of some brace-wearing goon finding that his all-cash bonus isn’t turning up this year is richly satisfying. Ergo: there’s a lot of regulation of executive pay afoot, with varying success.

We saw a fortnight ago that the FSA, the regulators who are meant to be cracking down on executive pay in the UK, crumpled like some playground poindexter when the banks said they weren’t prepared to take on their rules on pay, because London would become less competitive and because they might not be able to keep on the third gardener, and you know how clogged the pool filter gets in summer. The FSA watered them down to mere guidelines, which Barclays then promptly followed in a very creative manner the following week.

Not so President Sarkozy though, who yesterday announced a bunch of pay rules that banks couldn’t ignore, lest they be cut out of lucrative deals with the French government to trade bonds and the like. The rules are very similar to the ones the FSA postponed – deferment of bonuses, alignment of bonuses with long-term performance, and at least a third of each bonus being paid in shares rather than cash. Major banks have already signed up to the new rules, with BNP Paribas cutting their total bonus pot in half to €500m.  

Sarkozy has managed to do what the FSA claimed it couldn’t do yet, which is to simultaneously regulate compensation while still acknowledging the importance of not driving away bankers to other less stringently regulated shores. The FSA said it had to wait for an international agreement on bonuses before it could do anything, but Sarkozy has brought in the above changes while not capping the total amount of bonuses payable – banks can still offer potentially ridiculous sums of money in France, they just have to defer them and tie them to performance. Though Sarko is already trying to rally the troops to get a unilateral agreement on bonuses that will stop the aforementioned defection of greedy bankers – he’s meeting Angela Merkel to talk about it tomorrow.

It’s a wise political move from Sarko, who is starting up his re-election campaign – a leak from an anonymous government source in French mag Voici said that he and Bruni were holding off on having kids so they could play the “pregnancy card” during the elections and further curry electoral favour. By moving decisively and early on the bonus issue, he can play global powerbroker at the G20, and reap the political cachet that brings.

Of course, American bankers aren’t too happy about all this, according to Bloomberg – “I find Sarkozy’s statements threatening”, said one former Lehman executive, while an exec at Holland and Co described Sarkozy’s moves as “demagoguery run amok”. Their other comments were hard to make out amid the crying baby sounds.

Posted by Ben Beaumont-Thomas in Hot Money | August 26, 2009 11:47AM |