Capitalists and pay

A quick plug for Capitalists @ Work which is a blog I've only just come across and looks worth keeping an eye on. Like my fave private equity blog Going Private there probably isn't a lot of common ground politically, but there is a lot of well-written interesting stuff to be found.

Capitalists @ Work also reminded me that I haven't been keeping up with Robert Peston over the last couple of weeks. Although this piece they flag up is well worth a read generally, I admit to being drawn to the bit at the bottom about Hector Sants' comments on pay:

Last night's remarks by Sants indicate the FSA would be prepared to be more interventionist in re-introducing common sense into bankers' remuneration structures than he originally indicated he wanted to do.

Only a few months ago, he told me that he hoped banks' shareholders would put pressure on banks' executives to bring an end to the madness of bankers being paid huge bonuses on the basis of the notional profits they generate, rather than after years have elapsed to genuinely assess whether their respective deals make sense.

It appears he's having doubts that the banks' owners will sort this out without a little nudge.

Thankfully it looks like Sants hasn't fallen for the Ruth Lea line that institutional shareholders can/will sort out the pay issue. The overwhelming bulk of investors don't play any 'ownership' role beyond selling companies they think are losers. Fund managers simply aren't incentivised (either directly or by clients via specific mandates) to do so. If pension funds and others start structuring mandates in a way that does prompt managers to engage more this may change. But in the meantime expecting 'shareholders' to do the job is the wrong answer (unless you don't want the job to get done).