'Journeyman' bankers overpaid - Hampton
BBC business editor Robert Peston interviews the RBS chief
Large numbers of bankers are paid more than they're worth, the chairman of Royal Bank of Scotland has conceded, because of what he calls a "gangmaster" culture in investment banking.
Sir Philip Hampton, interviewed by me for a documentary to be broadcast on BBC2 at 2100GMT on Tuesday (Britain's Banks: too big to save), says:
"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 cultural 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 and 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 journeymen players, if you like, is probably not as marked as it should be."
Inevitably some will see similarities with Premier League football teams, in which even quite mediocre players earn tens of thousands of pounds per week, because that's the going rate for the Premier League.
Hampton says that when the real stars leave, "they take their clients and their business with them, and we see this routinely". That's why RBS feels obliged to pay huge bonuses to these top performers.
But it is "one of the major challenges" to reduce the pay of the more average bankers in the teams assembled by these stars.
Hampton also implies that investors have been irrational in allowing banks to pay huge bonuses. He says:
"This explosive growth in financial services 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 increases 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".
Hampton's frank analysis of the flaws in the way bankers are paid comes as the boards of big banks decide how much to pay out in bonuses for performance in 2010.
RBS is expected to award just under £1bn of bonuses in aggregate, down from around £1.3bn last year.
His remarks may exacerbate tensions in the coalition. As I disclosed in early January, the prime minister and chancellor have reluctantly come to the conclusion that they cannot prevent big British banks - even RBS, which is 83% owned by taxpayers - paying very substantial bonuses, lest these businesses are seriously damaged by paying less than the international going rate.
By contrast Liberal Democrat ministers - notably Vince Cable and Nick Clegg - remain determined to crack down on big bonuses.
In an interview on the Today programme David Cameron said: "In a matter of weeks... you will be able to see both what is going to happen at, effectively, state-owned banks, where I absolutely believe they should not be the front-markers on bonus payments, they will be the backmarkers."
To put it another way, Mr Cameron expects Lloyds and Royal Bank of Scotland to be less generous than other banks in their bonus payments, but accepts they will have to hand out what most will see as very substantial awards.
You can keep up with the latest from business editor Robert Peston by visiting his blog on the BBC News website.