President Sarkozy

French Bankers Accept Restrictions on Bonuses

In a ploy to strengthen his political capital, President Nicolas Sarkosy this past week convinced leaders of his country's major banks to cut proposed bonuses by 50% and to tie the payout of those bonuses to long-term performance. Sarkosy knows that the French proletariat have become angered at what they have deemed excessive compensation paid for on the backs of the working class. If this narrative sounds familiar, it should. Recall last year's bonus payouts and lavish outings made by Merrill Lynch (now owned by Bank of America), AIG and others which received billions of dollars in TARP funding. Now Mr. Sarkosy hopes to make hay on the world stage at the G-20 Summit scheduled next month in Pittsburgh.

At the heart of this debate are the issues that separate capitalism from socialism. Capitalists believe that private ownership and free enterprise provide the most efficient economic structure; socialism advocates ownership belongs to the community as a whole. With so many suffering at the demise of the financial system, it has become easy to lay blame on banks and bankers who have notoriously been the most highly compensated. Virtually no blame has been placed on the government whose policies set guidelines for reserve requirements or encouraged relaxed standards in lending. In this have versus have not scenario, world leaders with socialist tendencies have an audience of tens of millions eagerly waiting to hear their message.

The likelihood is that Sarkosy will be warmly received by the Obama administration during his visit in September and that the two will tag-team on ways to influence the amounts and methods to which banks compensate their employees. As changes in compensation policies begin to take effect bankers directly impacted will look for opportunities to regain their “lost” income resulting in a flight of talent from the US and France to countries where the laws are less imposing. The US, which has been a magnet for the world's most gifted and talented, will weaken over time if policy changes are allowed to reverse this polarity. To maintain its status as the world's financial epicenter, the US must ensure the virtues of capitalism go unimpeded. Instead of directing banker compensation, the government should concentrate on revising banking policy that reinforces a strong and sustainable banking structure.

Pete Canalichio
August 29, 2009