Dutch ban on bonuses - just populist politics?

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Ban bonuses for bankers - a good idea or just a populist hobbyhorse for politicians? The Dutch parliament’s finance committee met on Monday to discuss a proposal for legislation to ban bankers’ bonuses submitted by two opposition parties, Labour and the Socialist Party.

Kilian Wawoe, former human resources director at ABN-Amro bank, is scathing about the banking sector’s bonus culture:

“Take Dexia Bank in Belgium as an example. Dexia’s CEO recently received a bonus of 600,000. You might think that was reasonable for someone at the helm of a financial institution making millions in profits. The point is, a year later, the same person had to quit and the bank had to be rescued with government funds. I mean, his performance looked a lot poorer in retrospect.”

Wawoe was responsible for handing out his bank’s annual bonuses. The turning point came when he noticed that ABN-Amro kept awarding generous bonuses during the credit crisis of 2008, when the bank was taken over by the Dutch state. He felt moved to write a book entitled Bonus. “I saw that the profit always went to the bankers and the losses were always picked up by society.”

Creating money
Financial expert and founder of the Gold & Discovery Fund, Willem Middelkoop, describes bonuses as “bordering on theft”.

“They’re the result of the fact that banks are able to create money. They can purchase money cheaply from the European Central Bank at 1 percent interest, lend it out at 4-5 percent and declare the difference as profit. Then they get to divide up the spoils. Of course, it’s very peculiar that bankers are the ones who get to create money. That’s a job for government, I would have thought. Strangely enough, that’s something that is never discussed.”

European measures
Middelkoop sees proposals aimed at reducing or restricting bonuses as only “good for election campaigns”. If you really want to change things, he argues, it has to be done on a larger scale - with agreements at European level, for example. Otherwise, the competitive position of Dutch banks will suffer.

Joost Goudsmit agrees. He is managing director of an executive search club, headhunting for senior positions in major companies.

“If you really want to do that, you first have to figure out how to organise it at the European or global level. One country doing it alone solves nothing.”

The debate is not just heating up in the Netherlands but also in the rest of Europe and the United States. In Great Britain recently, Fred Goodwin, former head of the Royal Bank of Scotland - and popularly known as Fred the Shred - had to hand back his bonus and was even stripped of his knighthood.

Goudsmit says discussion has gone too far:

“People always act as if bonuses are somehow evil. It’s just getting paid extra for doing your work really well. I know there have been excesses, but I think the discussion is getting too populist. The government is particularly guilty, given that they have never worked with bonuses and don’t understand them.”

The Dutch finance committee may decide to present the opposition proposal on banning bankers’ bonuses to the Lower House of parliament. Depending how MPs respond, it may then be taken further.