Do bank CEOs deserve huge salaries?

As a business reporter covering the banking sector, I’m frequently asked by my friends to write critically about top bankers of the country. It is simply scandalous that bank CEOs make tens of millions every year in compensation, they say. How can it be moral that the CEO of the country’s largest bank earned Rs53.2 million in 2014, although the minimum wage in the province he lived in was merely Rs144,000 a year? Isn’t the whole system rigged in favour of the big guy when the total remuneration of the CEO in question was 38 times higher than the approximate annual cost per staff member of his bank?

Such moral judgments about a bank CEO’s remuneration seem justified on the surface. But put the debate in its right context, and things start to fall into perspective. Why did more than 100,000 shareholders — large and small — of the bank in question agree to pay their CEO over Rs4.4 million a month in 2014? Because out of more than 143,000 people that the banking sector employs in total, only 32 professionals sit at the helm of their respective institutions. The CEO in question leads the biggest financial institution operating in the country, with total assets amounting to over Rs1.7 trillion. In other words, total assets of his bank constitute almost seven per cent of the size of the national economy.

This means that a professional leading such a financial juggernaut should arguably be one of the most skilled bankers in the country. Just imagine what could go wrong if he was to commit a mistake. All it takes for a nation-wide run on the banking system — and a subsequent meltdown across the economy — is a single statement by a CEO of a large bank casting doubts on the sustainability of, well, his own bank.

Despite its numerous flaws and shortcomings, we should keep in mind that the job market in the private sector is intrinsically democratic. It’s a place where people vote with their money. These voters are company sponsors, advertisers, shareholders and customers. An executive’s remuneration is reflective of the value that his institution places on him. CEOs get booted out frequently. Bank sponsors can replace their CEOs any time, shareholders can voice their concerns over executive remuneration in annual general meetings and depositors are free to take their business to another bank at any moment. I’d gladly prefer the ‘unjustified’ salaries of top bankers over a centralised system where a government organisation decides how much an individual should be allowed to earn in a year.

Published in The Express Tribune, March 13^th, 2015.