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Stuart Jackson: Time for a Pay Cut

How much is a central banker worth?

No one seems to know. Ben Bernanke, the US Federal Reserve Board chairman, is indisputably the world's most important central banker. Yet he's paid less than USD200,000 a year. The heads of the European Central Bank, the Bank of England, and the Bank of Japan—the other truly heavyweight monetary authorities—all make anywhere from about double to more than four times as much as Bernanke.


Then there's Joseph Yam, the soon-to-retire founding head of the Hong Kong Monetary Authority, what's usually referred to as the city's de facto central bank (though it really isn't one). His HKD7.78 million salary alone exceeded that of all the others. And last year he pulled down roughly another HKD$4 million in bonus (based on the performance of the Exchange Fund in the preceding bull-market year) and benefits. His total compensation was just shy of HKD$12 million.


A case could certainly be made that Bernanke is underpaid, though it bears remembering that his compensation is in-line with that of other top US government officials. (US Treasury Secretary Tim Geithner earns a comparable amount.) While US corporate chieftains are without doubt the world's most highly-compensated—or most overpaid--in the world, US government salaries are in fact not especially generous.


Yam's pay is a whole other matter. And the government should use the opportunity of naming a successor to bring the HKMA chief's pay—and that of some of his equally well-compensated deputies—down to earth. While Hong Kong doesn't necessarily need to adopt a US-style system, in which everyone earns less than the top dog, the US President, it seems clearly anomalous for the Monetary Authority boss to make almost four times as much as his immediate superior, the Financial Secretary.


Some will argue that Yam could have earned that much or more in the private sector, which is quite possibly true, though as a life-time civil servant who started work as a government statistician, he has no business experience. By this line os reasoning, we have to pay through the nose if we want to get top-flight talent for what is unquestionably a sensitive and important job.


That argument doesn't really hold up, however, since people enter public service for reasons other than simple personal gain, just as others become artists or musicians or teachers, thereby forgoing the opportunity to pursue more lucrative lines of endeavor. Very few people ultimately make career choices based solely on their chance to cash in, even in a society as money-obsessed as Hong Kong. To get rich may indeed be glorious, but for many people, it isn't everything.


Besides there is plenty of evidence that governments can attract—and retain—talented and highly qualified individuals without matching private sector pay. Paul Volcker, arguably the most distinguished Federal Reserve chairman of the last 50 years, lived a relatively modest lifestyle, and was never heard to grouse about his pay, or to make a fast dash for the exits to grab his piece of the pie.


Moreover, the HKMA job isn't really that of a central banker. As we are seeing now, in times of great crisis, the role of central bankers tends to loom increasingly large. That was the case in Hong Kong in 1997-1998 when Yam successfully defended the local dollar's peg to the US dollar, first by driving interbank rates to astronomical levels, then by engineering the purchase of USD15 billion in stocks in an ultimately successful bid to put the squeeze on speculators.


Yet in more normal circumstances—which is most of the time—the main job of a central bank is really to use monetary policy to tamp down inflation while ensuring the economy has adequate credit to grow sustainably.


That's where the HKMA fails the test of being a true central bank. The dollar peg effectively means that the US Federal Reserve sets Hong Kong interest rates, not the HKMA.


None of this means that the HKMA isn't a vital institution, nor that Joseph Yam has done a poor job. He and the Authority have drawn fire for their handling of the Lehman “mini-bond” fiasco, though there's plenty of blame to go around on that one, including the banks that flogged them and the incautious investors who went yield-chasing and got caught out.


Yam has served the city well, and deserves the accolades he is receiving.


Yet that doesn't change the fact that he was wildly overpaid for his services.