Over-paid bankers have "given capitalism a bad name", according to the director general of the Institute of Directors, Simon Walker. He said it was "unacceptable" that more than 500 employees of Barclays and the Royal Bank of Scotland had received remuneration in excess of £1m in 2012, a year in which both banks were embroiled in interest rate-rigging and product mis-selling scandals.
"Shareholder value has been destroyed, capitalism has been given a bad name, key measures of the market have been manipulated for cynical gains, taxpayers have shelled out billions to bail banks out, and yet vast reward packages are still being handed out," Mr Walker said at an event on Tuesday hosted by the Chartered Institute of Public Relations.
Mr Walker, who became head of the IoD in October 2011 after a career in public relations, said that the "rewards for failure" at large banks were undermining public faith in free markets.
"The wider population are starting to become concerned, incensed even, by the perceived failings of private business," hewarned. "Those voters are starting to question the system itself. And that is understandable."
He said that trying to put a positive gloss on banks' recent behaviour was like "polishing a turd", and added that only a substantive change in behaviour, rather than public relations spin, could restore public faith in the sector.
"People outside the communications industry sometimes think that it is possible to spin anything – that the proverbial turd can indeed be polished, if you'll pardon the metaphor," he said. "But sometimes it can't – sometimes the underlying facts are the problem. Sometimes the best communications advice has to be to change the behaviour that is inviting bad publicity."
Rejecting the idea that it was his job to defend all businesses, he said: "The IoD's role is to promote good business. To defend the reputations of the millions of businesses who do the right thing, we must call out those who do wrong."
Mr Walker, who headed the BVCA, which represents British private equity and venture capital, before joining the IoD, described the forthcoming European cap on bankers' bonuses as "wrong-headed and counter-productive", but he added that the failure of banks to restore sanity to their remuneration practices made it impossible for others to make a credible case against it.
Under the agreement, bonuses in banks across the EU will be capped at a year's salary, but it can be a bonus worth 200 per cent of their pay if explicit approval from shareholders is secured.
Andrew Bailey, head of the new Prudential Regulation Authority, has predicted that UK banks would respond to the bonus cap by raising fixed salaries by around £500m.
"It's being driven by popular anti-bank sentiment," Mr Bailey told his confirmation hearing at the Treasury Select Committee yesterday. "It won't have the effect of reducing overall remuneration."
Mr Bailey also said that although Royal Bank of Scotland and Lloyds would be named by the regulator next week as needing to raise more capital to bolster their positions, he had not been pushing for the Government to inject more capital into the two institutions, which had to be rescued by taxpayers in 2008.
Last week Sir Mervyn King, Governor of the Bank of England, argued that RBS should be split into a good bank and a bad bank, with the latter speedily sold back to the private sector.Reuse content