The collapse in pay shows banking has changed

That said, it is also clear that the levels of banking pay we saw in 2006-07 are no longer realistic, for three reasons. First, the world was undergoing a massive bubble at the time, fuelled by too much cash chasing too few assets. Bankers profited from the action. Today’s markets are tamer, with far fewer deals and activity.

Third, the industry has been hit by numerous other costs, not least the gradual withdrawal of governments’ implicit guarantees, upping their cost of capital, and a regulatory avalanche. This is squeezing the share of revenues that can be devoted to staff pay while ensuring that shareholders are properly compensated.

The result has been a little-noticed collapse in banking pay. William Wright, who runs New Financial, a think-tank, has crunched the numbers on his website . He calculates that disclosed pay at big investment banks has dropped by more than a quarter since 2007; that the average compensation cost per employee fell another 6pc last year and is now down by 30pc since 2007 (after adjusting for inflation, it is down by more than 40pc); and that the compensation ratio (pay as a share of banks’ revenues) collapsed to 38pc last year, down from almost 50pc before the crisis. The shift has been dramatic, but has gone unnoticed among the massed ranks of banker-bashers.

Powerful forces have led to a collapse in pay in an industry that is adapting to a permanently changed regulatory environment and economy. Those who continue to claim that banks haven’t changed need to check their facts.

WPP’s success

Sir Martin Sorrell’s strategy is paying off very nicely indeed. WPP, the advertising giant he has built up since the Eighties, has reported a strong set of figures, even though his numbers, in common with much of UK Plc, were damaged by the strong pound. Two of his decisions in particular have proved spot on: his focus on emerging markets and his embrace of the digital revolution. The collapse of the Publicis-Omnicom merger, which would have created a powerful rival, also helped.

The fact that WPP’s margins hit 13pc was an especially impressive achievement: given the ever-increasing transparency of advertising markets, one might have expected a relentless squeeze on that key metric. It wasn’t all good, obviously: the company’s exposure to Russia, which looked clever a few years ago, now looks misjudged. But WPP is growing fast and is increasingly diversified, and it will weather the geopolitical storm ahead.

allister.heath@telegraph.co.uk

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