A question about bonus culture

Some parts of a business may make a profit. Contractual bonuses will pay out if someone works in a profit making part.

The term bonus is very mis-leading. Usually it is really performance related variable compensation. If someone is set a task to reduce costs by one million and they actually reduce costs by two then shouldn't they be rewarded?

I think that would depend on how many corpses they stepped over in making the saving.

Hell might be a more appropriate place for some of the buggers.

George

quote:

Originally posted by GFFJ:
... Hell might be a more appropriate place for some of the buggers.

George

I joined a bank 24 months ago having never been in the industry before. There are many different business units with very different bonus structures. Some high risk areas (with high return) have large bonus opportunities. My area (retail banking) offers limited bonuses. I worked damn hard last year and my area did well against it's objectives. I think that's fair enough.

George. You demonstrate a lack of understanding quite out of character.

Jay

I suspect I know less about this than most, but if a company is being kept afloat only due to a massive injection of tax payers money I fail to see why anybody should be paid more than their salary. If your job is to shave a million pounds off costs and you have shaved off two million - well done, you have earnt your salary and shown management they set their targets too low- not a bonus paid for by tax payers.

I wait to be shot down in flames!

quote:

Originally posted by Jay:
...

George. You demonstrate a lack of understanding quite out of character.

Jay

Dear Jay,

I am fully aware that most people woking in the retail banking sector are by no means well paid let alone likely to collect large bonus payments! I am not calling tellers, buggers.

The buggers I would send to Hell are the ones who are going to share on billion GBPs of money from the RBS after the tax payers have to fund twenty billion GBPs to stop the bank collapsing, for example.

In my view there should be no bonus payments at all until the bank is healthy enough to be floated off into the private sector again.

If these buggers want to leave and get employment elsewhere, all the better for the taxpayer IMHO.

George

George,

Absolutely agree. Corporate greed driven by the bonus and stock option culture has gotten us into this mess, yet some still want "rewards" for managing us to the worst finacial meltdown since '29.

If their inflated salaries (minus bonus) is insufficent for them I suggest they go flip burgers as most other companies seem to be going TU for lack of finance / cash flow caused by the banks.

quote:

Originally posted by FlyMe:
If your job is to shave a million pounds off costs and you have shaved off two million - well done, you have earnt your salary and shown management they set their targets too low- not a bonus paid for by tax payers.

And most people will stop at one million. Why do more? You will still get your salary after all.

This seems to be an issue of the entire culture I think. These high powered employees live in a world where mega-millions, greed and extreme wealth have been 'normalised'. This looks almost obscene from the outside. If the culture demands huge bonus payments because 'everyone else does it' then perhaps we have an insight into the entire system. Too much risk, too much power, too much to win and lose. Loss of perspective.

I have no problem paying people serious money to do a serious job. I also have no problems with performance related pay bonuses but it needs proportionality. It should not be proportional to the money 'made' but to the targets set and be a small percentage of total earning.

The flip side needs to be observed too, poor performance should be identified and remedied, as visibly as rewards are advertised.



Bruce

quote:

Originally posted by GFFJ:

Dear Jay,

I am fully aware that most people woking in the retail banking sector are by no means well paid let alone likely to collect large bonus payments! I am not calling tellers, buggers.

The buggers I would send to Hell are the ones who are going to share on billion GBPs of money from the RBS after the tax payers have to fund twenty billion GBPs to stop the bank collapsing, for example.

In my view there should be no bonus payments at all until the bank is healthy enough to be floated off into the private sector again.

If these buggers want to leave and get employment elsewhere, all the better for the taxpayer IMHO.

George

With that clear. Fair enough.

It was interesting wrt Barclays that they made £6bn profit, £5bn of which came from their lowly branch banking operation. Sounds to me like the tellers need to be paid better and the traders rather less!

On the subject of city salaries v every other profession I have long felt that their remuneration was so completely out of step with every other sector it needed addressing. These people are paid large multiples of other professional salaries such as doctors, lawyers, army officers, pilots etc and it is ludicrous for what seems to me to be glorified bookmaking!

Jonathan

I've never actually understood, nor agreed, with bonus culture.....Just goes over the top of my head.

No one has ever paid me twice for doing a job once....and having put my neck on the line a couple of times in dangerous spots of the world, I scratch my head at the whole concept. Perhaps I need to wear a suit.

As for insensitivity, I guess I only need to think about the AIG executive jolly a week after the US $48 billion bailout, or the infamous £330,000 HBOS booze up back in the UK in November....

Every man for himself.....I guess.

I heard recently that Loyds Tsb had been less exposed to toxic debt than most but the bailout (buyout) of HBOS (and so the exposure to their debt) had created a situation ehere LTSB exposure then created the necessity to take a public cash injection. If this is/was the case then surely allowing employees to take a (modest) bonus payment would be O.K.?
The term here however is 'modest' and if as George suggests any banker should wish to go and flip burgers my attitude now would be to all of them, go and try to find these jobs that are available to purchase your skills. I'm pretty sure you will be in line along with people already looking for them i.e. the poor sod's who used to work for Lie(ei)mans.
The financial sector has for years held the government to ransom (i.e. 'regulation hurting profitability', when it was there for the very reason that greedy financiers needed regulation) and has been culpable in its own downfall. For many it should be time to pay the price, however as usual I fear it won't be the ones who deserve it.

quote:

Originally posted by GFFJ:

quote:

Originally posted by Jay:
...

George. You demonstrate a lack of understanding quite out of character.

Jay

Dear Jay,

I am fully aware that most people woking in the retail banking sector are by no means well paid let alone likely to collect large bonus payments! I am not calling tellers, buggers.

The buggers I would send to Hell are the ones who are going to share on billion GBPs of money from the RBS after the tax payers have to fund twenty billion GBPs to stop the bank collapsing, for example.

In my view there should be no bonus payments at all until the bank is healthy enough to be floated off into the private sector again.

If these buggers want to leave and get employment elsewhere, all the better for the taxpayer IMHO.

George

George,
You've hit the nail right on the head with a candour that's surprising given your normally gentle demeanour. I can't believe the people I've seen on the news recently trying to defend and justifiy this iniquitous system.

I went to Business school in the UK and met a lot of wannabe bankers, private equity jocks and hedge fundies.

Some of them were nice people and they were all pretty smart. They were largely focussed on the extra-ordinary paypackets including the ludicrous bonuses.

I remain very cycnical about the true worth of much of the financial alchemy that they saw as their future vocation. Playing around with other people's money doesn't seem to be benefit anyone other than those skimming the fees.

Banks, in their most basic form allow people to aggregate their capital to allow the execution of projects that would otherwise not be readily achievable. One level above that, they can also help spread (but not reduce) the risks associated with such ventures.

The banking and financial services industry mostly now operates (still) at levels of complexity way beyond this. The benfits accrue only to those shuffling the money in this giant ponzi scheme. The complexity is obviously an asset to these people seeking to steal our savings. The simple task of connecting investors with those who need the capital to build and produce real things of value has been relegated to the basement and is undertaken by the lowest paid and least respected members of the club.

Yes, I'm jealous of multi-million dollar/pound paypackets, and my views are coloured by that. Anyone else admit their views are affected by jealousy?

Just my two cents....

Good post winky.

Describes what I was trying to say-that this esoteric world of numbers and screens seems to have become divorced from real life. The industry seems to have lost its link to actual products, people, jobs, steel and concrete. I know it has boomed at times, and generated jobs and income that has spread widely beyond the City but it appears to have been at a great cost ultimately.

Am I jealous? No, actually. I work hard enough but have a life work balance that is mostly where I want it. I'm not ambitious for wealth, I'm well rewarded financially but also at a deeper level of satisfaction. I do not think I could work in an industry where the 'product' was just the creation of wealth. Maybe when I was younger, but not now.

Bruce

Winky,

Your post re:jealousy is an interesting one - I don't feel jealous of the money they earn except for its secondary effect on house prices in the South East which has forced most of us in normal professions to either end up living in houses which aren't quite as good as we anticipated or to give up time with children by both working to support a reasonable family home.

In the South East you're really looking at almost £400k to buy what I would consider a decent 3-4 bed family home in a reasonable area and when you consider that the average salary in the UK is £20-£30k it's hard to see how any normal person can buy somewhere decent to live and have one partner at home to raise the children - which I have to say is I think the best way to do things. (And I speak as someone whose Daughter spends 4 days a week in nursery)

Jonathan

Whilst i can fully appreciate that most of the 'general public' are up in arms over Bonuses in the banking sector, surely having invested in these banks as taxpayers we should be absolutely committed to their generating a profit, and hence a return on our investment.

The people managing the banks, although not entirely deserving of our implicit trust, need to have certain freedom to operate the bank in a way which is commensurate with how institutions in that sector are run. If this means retaining the best staff in order to 'steer the ship back on course' then their remuneration packages will need to reflect this.

I'm not saying that they should be allowed to get away with ridiculous reward packages, but for the indignant public to be up in arms about bonuses being paid at all is showing a lack of appreciation of the employment market that these institutions still play in.

Imagine that the Government propped up a suffering football team which has been a national institution for years - let's say Spurs. Can you imagine what'd happen if the public put pressure on the Government/management not to pay the huge salaries that the players earn - because it's 'our' taxpayers money. The team would go down the tubes pretty quickly as all the players would find better jobs elsewhere, and we wouldn't get any return on the investment, rather we'd lose the money already invested.

There is an argument that there are no jobs in that sector anyway, so people won't leave. I find this naive also - good people will find jobs, and there are still plenty of good jobs being advertised in the financial sector. The UK Government has proven itself notoriously bad at managing real projects and institutions - the best people to manage the banks are the people experienced in the sector, who have learned from the recent collapses. We need to be able to, within reason, allow them to rebuild using their experience in banking.

I'm seriously not defending the mistakes that have been made in the banking sector, but neither to I expect that unduly hamstringing the management will necessarily bring about the best return on investment. This media fed public indignation is naive.

Northern Rock paid back 25% of the Government money ahead of time and staff received bonuses for their part of the recovery. Good on them!

Phil

Jealously? No, more I think the idle speculation that accompanies the celebrities plastered across the pages of tawdry publications on sale at supermarket checkout stations. With banking being made both visible and fashionable by over exposure in the press the leading figures now attract speculation and comment that would be welcome by many a z-list cleb.

Jealous? No. Curious yes as to how all this once invisible world of banking seems to have gone from zero to hero and now back to zero without any comment being passed by controlling bodies scattered across the globe. Something has gone tits up in the most spectacular fashion and that is a story that attracts my attention.

Government tends to believe that low paid workers asking for a rise are risking 'pricing themselves out of a job' (remember how the minimum wage destroyed the world?) and people at the top (they people they like to deal with) need high wages to attract and motivate them to jobs in the UK (PLC bollox).

Even now they think they might get away with this -

"They claimed efforts to turn round the ailing banks would be hampered if bonuses were capped. "These banks would simply not attract the best people, who would just go elsewhere," one senior government source said. "Of course the banks must be mindful of the public reaction to pay and bonuses; but they shouldn't shoot themselves in the foot by losing the people they need."

Presumably most people would think the best people were those who had been working in banks which had managed, relatively, to resist the temptations of the market and ploughed a dull furrow to mild profits.

Government money is therefore being given to the failures - to allow them to poach from better banks. OR, more likely, to continue troughing away with the same unreconstructed pigs. Until rescued again.

Adam,

Fair point, however there's a significant different between paying huge bonuses to the 'fat cats' at the top who're ultimately responsible for the current situation, and paying bonuses to capble people within the organisation who are significantly less (if not at all) culpable, and who were following corporate policy and being rewarded for it.

I would hope that these people will now be following a revised corporate policy which will better incentivise behaviours that not only seek to generate short term profit (seemingly at any cost) but, rather, generate potentially more moderate profits in the short term balanced by sustainable future growth and managed risk in the longer term. I would also hope that incentives are placed on the banks to retain capital in the good times (rather than invest it all in further, and sometimes dubious loans) in order to fund through the bad times.

To suggest that no bonuses at all should be paid to anyone in the banks is to potentially restrict the ability of the management to effectively manage what is a struggling business in a difficult economy by using monetary incentives. Ultimately it'll have to be the staff at all levels of the banks which turn them around. I think a reasonable cap may be a way forward, but to forbid bonuses at all?

Furthermore I believe that amount of taxpayers money 'ploughed into the banks' whilst seemingly a huge figure, is in many cases a relatively minor percentage of the bank's turnover. I'm therefore concerned that many taxpayers believe we now own the banks due to our huge investment. The money wasn't intended to purchase a stake in the banks, but rather to offer the bank an alternative source of funding for loans as inter bank lending has largely dried up. These loans will directly help smaller businesses and individuals to ride the recession.

I'm not averse to sensible corporate governance but to a nation of armchair experts whirled up by the media into a frenzy of uninformed indignation.

Phil

Perhaps there should be a cap on the possible bonus anyone might receieve - limited to say 15 per cent of their gross salary?

That should be enshrined in legislation and would mean that never again will a bonus system incentivize this kind of short termism, as the view will be that it is better to keep the job going long term rather than make a fast buck regardless of the consequences, get the bonus, and buzz off to some other casino banking enterprise. Banks should be boring, safe, conservative with a small c places, not places where whizz-kids can take mega-buck bonuses and fleece the tax payer with their utter incompetence or worse greedy indifference ...

What really has annoyed me about this debacle is that it is the poorest in society who will pay for it in the greatest increment - through taxation.

Taxation falls most heavily on the low paid full-time worker, because of regressive taxes like the Council Tax, and indiscriminate ones like VAT and Road Rund Tax.

We shall be paying for the idiot bankers' behavior through the tax take for at least a decade possibly two from now on.

My view is that other peoples' money is something that the bankers have effectively stolen by neglecting their responsibility to prudence in dealing honestly with depositors' money.

If I loose ten GBPs that a friend has given me to buy something for them, then I pay for it myself, and without complaint, or even a mention of the fact. If only those bamkers, whose imprudence has led to this current mess and need for taxpayers' money to underwrite their idiocy, would only take a similar attitude, ... but no, ... they want more, ... and more.

As I said Hell is quite possibly the place for some of them ...

ATB from George

[Who is neither a borrower or a depositer, but certainly a tax payer].

quote:

Hell is quite possibly the place for some of them

Dudley it is!

quote:

These banks would simply not attract the best people

No change there then.

quote:

who would just go elsewhere

go where? Receded.

Great CV - last job: losing millions of investors cash; reason for leaving: sacked because of greed.

Why do we need the crew of the Golgafrincham Ark Fleet, Ship B?

Still since a group of bankers decided to make the leaf the unit of currency, we have all become incredibly rich; only downside is a Nait 5i now costs three deciduous forests, but at least you can get a good hair cut and the phones are clean.

quote:

My view is that other peoples' money is something that the bankers have effectively stolen by neglecting their responsibility to prudence in dealing honestly with depositors' money.

I'm inclined to agree and I think this theft is worthy of criminal investigation.

ATB Rotf

What we need is a newspaper like the Daily Crucible to get a list of all the bankers responsible and print their names and addresses.

Phil

The VAST majority of businesses and industry operate perfectly well without paying commissions or bonuses or incentivised salaries either to its managers or staff/workers. In other words their employees are decent, hard-working, inventive people, willing to work effectively for a half-decent wage.

What is it that makes you think that banking can't operate successfully on the same basis.

There seems to be a smoking gun that demonstrates that banking doesn't work too well with its current bonus arrangements.

Cheers

Don