High Salaries at Financial Institutions

Following the collapse of U.S. investment bank Lehman Brothers in September 2008, President Lee Myung-bak urged domestic banks to rein in salaries. “I don’t think it’s right for banks to ask for taxpayers’ money while maintaining a high salary system,” he said. State-owned banks have since cut executive pay and commercial banks have reduced their payrolls. Banks have also increased vacation days for staff to reduce annual salaries. The introduction of a bank tax and mandatory lending of 10 percent of a bank’s profits to low-income households were also proposed but never realized.

The U.S. also faces criticism for high wages at financial institutions. Early this year, U.S. President Barack Obama announced a proposal on taxing the largest financial institutions to get them to repay bailout funds of 700 million U.S. dollars using taxpayers’ money. The tax is expected to raise at least 90 billion dollars over the next 10 years.

In Renaissance-era Italy, how did the Medici family earn money to sponsor painter Michelangelo and astronomer Galileo Galilei and foster architects in Florence? The family made money through money changing guilds that were later called “bankers” as they worked at tables and benches on streets. Though the Medicis later went to the Netherlands and the U.K. to form the model of the modern bank, their assets were forfeited due to monopolization. As was the case with Shylock in Shakespeare’s play “The Merchant of Venice,” early bankers had to face similar criticism.

In Korea, ruling Grand National Party Rep. Bae Young-sik said at the annual audit of the government that 40 percent of staff at listed companies earn more than 100 million won (90,000 dollars) each per year. At state-owned financial institutions, KDB Financial Group had the highest average salary of 116 million (103,000 dollars), followed by Korea Finance Corp. with 95 million won (85,000 dollars) and Korea Development Bank with 87 million won (77,000 dollars). Niall Ferguson, an economics history professor at Harvard University, said, "Poverty is not the result of rapacious financiers exploiting the poor." Financial executives and employees earn big money when their institutions do well, but rely on bailouts when driven to the brink of bankruptcy. This naturally causes strong public criticism of the high salaries in the financial sector.

Editorial Writer Park Young-kyun (parkyk@donga.com)