Last updated: 18 january, 2011 - 17:52 GMT

Bank bonuses: 'Gangmaster culture' in UK

The chairman of one of Britain's biggest banks has said that a 'gangmaster culture' exists among the investment bankers in the City of London who work for him.

Sir Philip Hampton, chairman of the Royal Bank of Scotland, said this culture is partly responsible for big banker salaries. He told the BBC's business editor, Robert Peston, that it was a 'major challenge' deciding how to compensate the less-than-stellar players that surround top banking talent.

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Partial transcript and interview excerpt below:

Sir Philip Hampton: I think bankers historically have been some of the more highly paid people in society. When I was an investment banker 30 years ago, I was highly paid, but there weren’t very many people who were highly paid. It was a relatively small number of people, both in London and other major financial centres.

Sir Philip Hampton, Chairman of RBS

Sir Philip Hampton: Bankers performance 'pretty disastrous'

This explosive growth in financial centres meant that thousands of people - arguably tens of thousands of people -are extraordinarily highly paid. The most peculiar thing about it all, actually if you look at the last 10 years of massive increase in pay, is that the performance for shareholders has been pretty disastrous really across most banks. Some of them have gone out of business altogether, and most banks have had a relatively poor performance for shareholders.

But it is a market. This is what is so difficult for everybody in banks and even more so outside banks. There is a market for talent. There is no collusion around people to set the prices, and people do move from organization to organization. They are hired by organizations with the expectation that performance will be improved as a result of bringing somebody in on a high rate of pay or high rate of bonus or whatever.

So, we have an observable market which is hard to explain, but it is observable as a market. And when we lose people that we pay a lot of money to, our business suffers. They take their clients and their business with them, and we see this routinely. And when we bring somebody in, we don’t always get it right, but we normally get a boost in our performance.

Robert Peston: That said, although in any kind of industry there will be some people who are exceptional and you can see that when you pay them a lot of money, you are also getting a lot for that money. I think what seems striking to me about bankers though is that there are quite a lot of people who get paid an astonishing amount by normal standards, who look pretty average. Why does that happen?

[Y]ou recruit top people who really do make a difference... but they do tend to associate themselves with people who aren’t such stars

Sir Philip Hampton

Philip Hampton: I am not sure I have a perfect answer to that, but I agree it is one of the major challenges. The "star quality" as it were seems to filter down to people who don’t seem so "star quality". There is, if I can use the expression, a sort of gangmaster culture or phenomenon in this, that you recruit top people who really do make a difference, who really do move markets and get business and are really high achievers, but they do tend to associate themselves with people who aren’t such stars. But, they want them around them, they trust them, sometimes they move with them. And there is a team associated with it and the disparities between the top stars in the team and some of the journeyman players, if you like, is probably not as marked as it should be.

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