A question about bonus culture
Posted by: Jonathan Gorse on 09 February 2009
I'm curious about the current situation regarding bonuses paid to staff in banking. Leaving aside the emotive issues around this subject I'm struggling to understand why bonuses were being paid without any seeming link to profitability i.e. how can RBS for example with its disasterous losses still be contractually obliged to pay bonuses?
In my old field of airlines for example if the sales team increase turnover by selling all the seats at a loss then no bonuses would be paid if no profit is made. (I hasten to add that for flight deck crew we don't get any bonus anyway because you either land it or bend it and they reckon you are paid a salary to do the former)
Just curious,
Jonathan
In my old field of airlines for example if the sales team increase turnover by selling all the seats at a loss then no bonuses would be paid if no profit is made. (I hasten to add that for flight deck crew we don't get any bonus anyway because you either land it or bend it and they reckon you are paid a salary to do the former)
Just curious,
Jonathan
Posted on: 10 February 2009 by Phil Cork
Don,
No reason at all why, over time, the banking sector couldn't operate on the same basis.
What you can't do is impose this 'overnight' with little thought as to the consequences, and what you definitely can't do is impose it only on those banks in the UK in which the Government/taxpayer has an interest.
This can't initially be an idealogical argument, it needs to be a practical one which allows the institutions concerned to sustain themselves or even thrive in the current market conditions, in order to generate a return on our investment when pitted against their competitors.
Banking reform will need to be a strategic, long term, process. Reforming a mere subset of the industry that we happen to believe we own will likely backfire yielding worse results.
The football analogy is a good one. If we buy into a club and banish the excessive remuneration packages within our club we risk bringing about its decline. Now if we allow such practices to continue so that our club can compete fairly, whilst in parallel, reforming remuneration in the whole football league that's more likely to bring about the desired results in a sustainable way.
Again, what we shouldn't do is allow our indignation at the practices within the entire sector to hamstring a few institutions within it. Let them compete fairly whilst looking into widespread reforms and changes in regulation.
Phil
No reason at all why, over time, the banking sector couldn't operate on the same basis.
What you can't do is impose this 'overnight' with little thought as to the consequences, and what you definitely can't do is impose it only on those banks in the UK in which the Government/taxpayer has an interest.
This can't initially be an idealogical argument, it needs to be a practical one which allows the institutions concerned to sustain themselves or even thrive in the current market conditions, in order to generate a return on our investment when pitted against their competitors.
Banking reform will need to be a strategic, long term, process. Reforming a mere subset of the industry that we happen to believe we own will likely backfire yielding worse results.
The football analogy is a good one. If we buy into a club and banish the excessive remuneration packages within our club we risk bringing about its decline. Now if we allow such practices to continue so that our club can compete fairly, whilst in parallel, reforming remuneration in the whole football league that's more likely to bring about the desired results in a sustainable way.
Again, what we shouldn't do is allow our indignation at the practices within the entire sector to hamstring a few institutions within it. Let them compete fairly whilst looking into widespread reforms and changes in regulation.
Phil
Posted on: 10 February 2009 by Don Atkinson
Phil
I am pleased to see that you agree with my basic premise.
I didn't mention time-scales. IMHO these could be considerably shortened if the USA, the EU and a couple of other banking-blocks regions passed emergency legislation to eliminate banking bonuses with imediate effect - there would be no-where for all the bankers to run to. And introduced annual competency exams instead - and better regulation.
I jest not. To keep my job I have to pass a medical every 6 months, an instrument rating flying test every year, and an instructor renewal test every three years - each the same as the initial qualifying tests. Success looks like more students next month!! - Perhaps, if everyone in banking had to re-pass their banking exams every 12 months, just to keep their job, we might avoid the mistakes of the past?
Cheers
Don
I am pleased to see that you agree with my basic premise.
I didn't mention time-scales. IMHO these could be considerably shortened if the USA, the EU and a couple of other banking-blocks regions passed emergency legislation to eliminate banking bonuses with imediate effect - there would be no-where for all the bankers to run to. And introduced annual competency exams instead - and better regulation.
I jest not. To keep my job I have to pass a medical every 6 months, an instrument rating flying test every year, and an instructor renewal test every three years - each the same as the initial qualifying tests. Success looks like more students next month!! - Perhaps, if everyone in banking had to re-pass their banking exams every 12 months, just to keep their job, we might avoid the mistakes of the past?
Cheers
Don
Posted on: 10 February 2009 by u5227470736789439
There have already been many jobs lost in the banking sector in London and New York.
I can no reason why bonuses funded by the general tax-payer in the UK should not be outlawed in this session of Parliament. The competition for the remaining jobs must be intense, with or even without bonuses.
As Don said most other occupations get on perfectly well with a decent salary alone ...
How much more is that airliner pilot, who saved 150 and plus lives by so carefully landing his stricken craft in the Hudson, worth than all the bankers in New York and London put together?
I am afraid that I hold the bankers who have provoked this crsis in even greater contempt than the coal miners who struck with such devastating results in 1972 and 1974, and whom, of course, Mrs Thatcher so convincingly crushed in significance, when they tried to blackmail the country once again when she came to power.
Myself, I would gladly see the financial centre of London move to Frankfurt before the year is out and that we carry on in this country with a more rational retail banking sector, as clearly Angle-American Capitalism has produced a very sick version of what banking is about.
The sooner this sector is brought down to size the better in my view for everyone in the UK, even if this means a virtual abolishion of the whole enterprise.
We are no less being blackmailed by the bankers today than historically were we by the coal minors in past decades.
George
I can no reason why bonuses funded by the general tax-payer in the UK should not be outlawed in this session of Parliament. The competition for the remaining jobs must be intense, with or even without bonuses.
As Don said most other occupations get on perfectly well with a decent salary alone ...
How much more is that airliner pilot, who saved 150 and plus lives by so carefully landing his stricken craft in the Hudson, worth than all the bankers in New York and London put together?
I am afraid that I hold the bankers who have provoked this crsis in even greater contempt than the coal miners who struck with such devastating results in 1972 and 1974, and whom, of course, Mrs Thatcher so convincingly crushed in significance, when they tried to blackmail the country once again when she came to power.
Myself, I would gladly see the financial centre of London move to Frankfurt before the year is out and that we carry on in this country with a more rational retail banking sector, as clearly Angle-American Capitalism has produced a very sick version of what banking is about.
The sooner this sector is brought down to size the better in my view for everyone in the UK, even if this means a virtual abolishion of the whole enterprise.
We are no less being blackmailed by the bankers today than historically were we by the coal minors in past decades.
George
Posted on: 11 February 2009 by TomK
quote:Originally posted by Don Atkinson:
Perhaps, if everyone in banking had to re-pass their banking exams every 12 months, just to keep their job, we might avoid the mistakes of the past?
Cheers
Don
Don,
This four almost destroyed two of the world's oldest and greatest banking institutions and earned about eight million quid in the process. There's not a single banking qualification between them.
Posted on: 11 February 2009 by Jonathan Gorse
GFFJ,
Your point about the Hudson bay pilot is well made and in terms of pay the pilot scales in US Airways run from $36000 to $183000 US dollars - so to answer you question he earns so much less than a city trader, has far more responsibility and far more intense continuous training and regulation lasting his whole career.
The notion that banks need to pay ludicrous salaries to attract the best is poppycock in my view. The system the Japanese have where top pay is only allowed to exceed bottom pay by a factor of ten doesn't seem to have done Toyota, Nissan, Sony or Panasonic any harm when you look at the way they have grown their companies and delivered innovation after innovation.
No, in my view the banking system has been divorced from reality for too long and thankfully there will be a correction to this at last, a correction which will benefit the vast majority of us who operate in the real world.
My wife who works for BA was told last year that despite hitting the financial targets to trigger a small bonus payout (around £500-£1000 for most staff) the company didn't wish to pay it because after the T5 debacle it would be perceived negatively by the city. I for one am sick of seeing real world companies like BA beg and scrimp and hold down wages/bonuses/expenses etc to keep the city happy while those same city bankers award themselves yet another huge slug of cash.
Jonathan
Your point about the Hudson bay pilot is well made and in terms of pay the pilot scales in US Airways run from $36000 to $183000 US dollars - so to answer you question he earns so much less than a city trader, has far more responsibility and far more intense continuous training and regulation lasting his whole career.
The notion that banks need to pay ludicrous salaries to attract the best is poppycock in my view. The system the Japanese have where top pay is only allowed to exceed bottom pay by a factor of ten doesn't seem to have done Toyota, Nissan, Sony or Panasonic any harm when you look at the way they have grown their companies and delivered innovation after innovation.
No, in my view the banking system has been divorced from reality for too long and thankfully there will be a correction to this at last, a correction which will benefit the vast majority of us who operate in the real world.
My wife who works for BA was told last year that despite hitting the financial targets to trigger a small bonus payout (around £500-£1000 for most staff) the company didn't wish to pay it because after the T5 debacle it would be perceived negatively by the city. I for one am sick of seeing real world companies like BA beg and scrimp and hold down wages/bonuses/expenses etc to keep the city happy while those same city bankers award themselves yet another huge slug of cash.
Jonathan
Posted on: 11 February 2009 by Officer DBL
Banking is not all about city bankers, big bonuses and mega salaries. There are a lot of people in banking (which incidentally exists beyond the boundaries of the square mile) who are honourable, dedicated and modestly paid. The vast majority of them played no part in the decisions made by senior management that led to the current debacle, yet all appear to be guilty by association and group culpability. I think it is myopic, unreasonable and actually quite scary that the blame is being laid on everyone in the industry just because is is the trendy thing to do.
It is this sort of mindless hatred and rhetoric against a discrete section of society that in the past has led to some of the darkest times in mankind's history.
By all means blame the guilty, but do not make the mistake of tarring everyone in banking with the same brush. I am sure that you are all bigger than that - or at least I hope that is the case.
It is this sort of mindless hatred and rhetoric against a discrete section of society that in the past has led to some of the darkest times in mankind's history.
By all means blame the guilty, but do not make the mistake of tarring everyone in banking with the same brush. I am sure that you are all bigger than that - or at least I hope that is the case.
Posted on: 11 February 2009 by Jim Lawson
quote:The vast majority of them
At what point does the majority become vast? Must every majority be vast?
Posted on: 11 February 2009 by u5227470736789439
Dear Rob,
I am certain that a great number of regular [and often quite low paid] workers in the banking sectors are no more responsible for the present situation than were most of the 30 thousand or so employees at Woolworths with respect of that company's failure.
But there is absolutely no doubt that some very senior people who have taken and seemed up until a few days ago - and now appear to have been shamed out of it - to wish to continue to take massive bonuses in spite of an all too apparent failure to promote prudent business practice, have been entirely derelict in their duty of care with other peoples' money.
I say call a spade a spade.
These people should indeed be shamed for their actions, and shamed out of taking further bonuses for failed policies.
My source of information on this is not the Daily Mail, but the current Parliamentary Select Committee examining the whole affair, which is putting it into a very neat perspective, and obtaining some excruciating answers from some those most at fault ...
It is interesting that while wriggling on the Pariamentary hook they have still sought to put the blame in part on the Reguulatory Authorites.
Interesting for it has its parallel with the Fraudster blaming the Fraud Office for not being more efficient in eliminating the Fraud.
In other words they still have yet to fully accept the gravity of their own actions in unconditional terms, and are stil looking decided irresponsible and without true contrition.
I see an absolute parallel with these unreconstructed, arrogant, and thoroughly unpleasant people, and the leadeship of the NUM in 1972/74 and the early eighties.
If the City [like the coal industry in UK already has] were to wither on the vine now, then banking in retail and domestic sense is not going to go away, and as you suggest mostly this is outside the City. It is a necessary service, and demand will produce supply, and this will be regulated far more tightly than previously to the benefit of everyone I am sure, including the banks and their staff in the long term.
But as for the bonus motivated whizz-kid idiots at the very tops of these banks who have driven the banks into the ground with company policies that took insufficient account of the risks [see previous posts for my point about handling the money of others and the moral obligations that spring there-from], then I would hope that they never again find employment in the sector, and if the sector, in terms of its opacity and dissembling, largely dissapears in the UK, then we shall not be so badly off as it might be if they are allowed to continue unreconstructed in their business approach.
Not much sympathy for the ones responsible here.
Almost no person on this Forum is young enough not to be paying higher taxes for the rest of their lives as a direct result of the costs which will be bourne by the tax-payer, as a result of the actions of these top paid people at the highest levels in most particularly UK and US Banking.
My sadness is that like Woolworths, many honourable and low paid banking staff may well loose their jobs in time through this, through no fault of their own, and with no chance to have rectified the situation.
But life is never fair, ... for anyone ...
ATB from George
I am certain that a great number of regular [and often quite low paid] workers in the banking sectors are no more responsible for the present situation than were most of the 30 thousand or so employees at Woolworths with respect of that company's failure.
But there is absolutely no doubt that some very senior people who have taken and seemed up until a few days ago - and now appear to have been shamed out of it - to wish to continue to take massive bonuses in spite of an all too apparent failure to promote prudent business practice, have been entirely derelict in their duty of care with other peoples' money.
I say call a spade a spade.
These people should indeed be shamed for their actions, and shamed out of taking further bonuses for failed policies.
My source of information on this is not the Daily Mail, but the current Parliamentary Select Committee examining the whole affair, which is putting it into a very neat perspective, and obtaining some excruciating answers from some those most at fault ...
It is interesting that while wriggling on the Pariamentary hook they have still sought to put the blame in part on the Reguulatory Authorites.
Interesting for it has its parallel with the Fraudster blaming the Fraud Office for not being more efficient in eliminating the Fraud.
In other words they still have yet to fully accept the gravity of their own actions in unconditional terms, and are stil looking decided irresponsible and without true contrition.
I see an absolute parallel with these unreconstructed, arrogant, and thoroughly unpleasant people, and the leadeship of the NUM in 1972/74 and the early eighties.
If the City [like the coal industry in UK already has] were to wither on the vine now, then banking in retail and domestic sense is not going to go away, and as you suggest mostly this is outside the City. It is a necessary service, and demand will produce supply, and this will be regulated far more tightly than previously to the benefit of everyone I am sure, including the banks and their staff in the long term.
But as for the bonus motivated whizz-kid idiots at the very tops of these banks who have driven the banks into the ground with company policies that took insufficient account of the risks [see previous posts for my point about handling the money of others and the moral obligations that spring there-from], then I would hope that they never again find employment in the sector, and if the sector, in terms of its opacity and dissembling, largely dissapears in the UK, then we shall not be so badly off as it might be if they are allowed to continue unreconstructed in their business approach.
Not much sympathy for the ones responsible here.
Almost no person on this Forum is young enough not to be paying higher taxes for the rest of their lives as a direct result of the costs which will be bourne by the tax-payer, as a result of the actions of these top paid people at the highest levels in most particularly UK and US Banking.
My sadness is that like Woolworths, many honourable and low paid banking staff may well loose their jobs in time through this, through no fault of their own, and with no chance to have rectified the situation.
But life is never fair, ... for anyone ...
ATB from George
Posted on: 11 February 2009 by csl
if one half of my company makes money and the other half of the company bankrupts it, i don't pay the well performing half money i don't have. it is pretty simple actually. if your hand is out to the government for a loan, the government has every right to tell you how you can and cannot use that money. what happens when these firms pay out a stack of bonuses with government backed money, and then decide to fold? and don't think this isn't going to happen. there needs to be transparancy and clear claw back clauses for all this money going out. but alas it is too late.
Posted on: 11 February 2009 by Exiled Highlander
Rob/Phil
It looks like you are trying to push sand up hill with this particular argument in this room but I for one support your reasoned positions.
One question I would ask is who in here was complaining when the value of their property was going through the roof as a result of the of lending practices of these institutions that George now wants to be exported to Germany? Where was the righteous indignation then? Now we are in the blame game, the era of finger pointing and the knee jerk reactions that we see here.
Jim
It looks like you are trying to push sand up hill with this particular argument in this room but I for one support your reasoned positions.
One question I would ask is who in here was complaining when the value of their property was going through the roof as a result of the of lending practices of these institutions that George now wants to be exported to Germany? Where was the righteous indignation then? Now we are in the blame game, the era of finger pointing and the knee jerk reactions that we see here.
Jim
Posted on: 12 February 2009 by u5227470736789439
Dear Jim,
I have posted I here over three years ago about how long the credit funded boom could not go on as lomg ago as my time at Hereford which is more than three years ago ...
I opined that it would end in tears ...
I will attempt a search this evening.
I had conversations on this with my then landlord which served me badly as he sold my flat, which he had bought as buy to let in the mid-righties as a direct result causing me to have to move to a much more expensive property in terms of rent!
He sold at the peak, amd would not realise, now, what he sold for then ...
ATB from George
I have posted I here over three years ago about how long the credit funded boom could not go on as lomg ago as my time at Hereford which is more than three years ago ...
I opined that it would end in tears ...
I will attempt a search this evening.
I had conversations on this with my then landlord which served me badly as he sold my flat, which he had bought as buy to let in the mid-righties as a direct result causing me to have to move to a much more expensive property in terms of rent!
He sold at the peak, amd would not realise, now, what he sold for then ...
ATB from George
Posted on: 12 February 2009 by Don Atkinson
quote:who in here was complaining when the value of their property was going through the roof
Myself and one or two others. I was getting three young daughters to become independant in a rising property market. Look back over some of my posts two to three years ago.
As for the bollocks about hatred a couple of posts above..........jesus....where did this come from.
The whole, sorry state of banking affairs has exposed greed and greedy practices ad-nauseum. Its not hatred that is making people like me speak up, its exposure of this despicable culture and the realisation of how deep-seated the greed goes.
By all means pay people decent salaries and a modicum of performance related pay if this can be demonstrated to disproportionately enhance the performance of a company. But not when the company has failed. HBOS have stated that they STILL intend to pay bonuses, despite having been saved from virtual bankruptcy by a £10bn injection of taxpayer money, and despite knowing that the nation will be angry. Arrogance and greed seem to know no bounds at all in the banking world.
Despicable. And the G7 governments should put an end to it. This week.
Cheers
Don
Posted on: 12 February 2009 by Howlinhounddog
quote:it is pretty simple actually. if your hand is out to the government for a loan, the government has every right to tell you how you can and cannot use that money.
It's simpler than that CSL.
We the public via the government are in many cases the majority shareholder in these institutions.
As RBS chief said yesterday, it would be a pretty stupid chief exec. who ignored the majority shareholder.
A particularly interesting question stream yesterday about Tax avoidance schemes used by banks to limit UK taxation would, I think (hope) have repercussions on the way banks frame their balance books in the future.
Posted on: 12 February 2009 by Phil Cork
quote:Originally posted by csl:
if your hand is out to the government for a loan, the government has every right to tell you how you can and cannot use that money.
There is some truth in this of course, but as taxpayers do we trust the Government to instruct the banks in such a way as to maximise our return on investment?
I needn't remind you that the Government doesn't have a great record at managing large scale projects (Domes, for example?), and most certainly isn't full of MPs experienced in the banking sector. Worse still this current Government is hell-bent on public image (even without Alatair Campbell) and being seen to do the right (or left!) thing.
Therefore the Government may well have a right to tell the banks how to use the money, and indeed are doing so - stipulating that, for example, it must be used to fuel loans to SME's who have found it difficult to obtain loans from the banks to tide them over during difficult times. This is in turn due to the 'collapse' of inter-bank lending. This stipulation makes perfect sense as it's attacking one of the sources of the problems that the world markets are facing - insufficient capital held in many banks to support the necessary interbank lending which fuels liquidity and ability to deliver real money to people. It will therefore serve to prop up a number of UK business through the difficult times and preserve UK jobs - a fair and proper stipulation on the use of the money.
However, what is potentially dangerous is if, bending to public pressure created by the 'bonus frenzy' in the media (indeed the treasury select committee seemed pretty frenzied the other day), the Government put stipulations on the loans which, whilst appeasing the uninformed public (for what good that does), actually impede the ability of the bank to do business within a competitive market. The inability to pay the going rate for their staff is an impediment, simple as that. You can make all sorts of speculative arguments about whether people would get jobs elsewhere, and the whole market being depressed, but the shareholders in these banks (the real ones, not the 'accidental' ones the government created) will want the bank to be able to offer remuneration packages which ensure that the bank continues to employ staff it needs to ride the recession and recover successfully.
I note that no-one's attacking salaries, merely bonuses. I'm sure many people would baulk at the salaries a lot of people in the banking sector earn also, however these are less emotive and haven't been cited as a waste of taxpayer money. Bonuses are paid on merit and performance, suggesting that performance above the norm has been attained. People are asking how that can be if the banks have experienced the huge losses we've seen?
The issue here is one of how 'bankers' are being portrayed by the media. There are several types of activities within the institutions in question, not all of which have the risk profile capable of bringing about the losses we've witnessed. Indeed, many sectors within the financial institutions have continued to prop up the loss-making sectors to some extent, and will need to continue to do so. Do I need to remind anyone that Barclays posted £7bn pre-tax profits as recently as Feb 08? There's been much talk of 'toxic debt' being owned by the Government-owned banks in order to allow the other banks to generate profits in other areas. This implies that removal of the loss making areas would render an otherwise profitable business. This further implies therefore that not all 'bankers' are culpable in ruining the institutions...
Again, I'm not defending huge or ridiculous bonuses, but the right of the senior management of these institutions to determine what is appropriate remuneration for the staff they need to get back on track. It is not for us or the government to decide what 'appropriate' is.
Finally, and again, if we consider that the whole sector is out of control and needs regulating, we should do this globally, and not just within the institutions we have a stake in. Such regulation should address a number of issues, not just the emotive ones like bonuses. How about short selling in financial stocks, selling mortgages at 5-6 times salary...
I see that people have taken offence to the 'big four' blaming the regulators for allowing them to get away with certain practices. I see no-one's blaming the public for taking out mortgages they couldn't afford, or buying more on their credit cards than they could pay back.
So the public is blameless, the poor victim in all of this, sold ridiculous mortgages by unscrupulous 'bankers'...?
Good grief.
Phil
Posted on: 12 February 2009 by csl
phil,
you can't have it both ways. if the market determines what competitive salaries are for the firms to survive the recession, these business' would have already collapsed. it is tacitly understood that the firms were not viable as is, why should salaries remain constant? the govt. determined that mass bank failures were in noones best interest so they stepped in. reductions in operating capital are the first thing that need to happen to make these firms solvent again.
yes bonuses are paid for merit and performance, but just because you bat 1000% doesn't mean the team wins. while it is easy to see one's own performance in a vacuum, people who work for huge corporations are held to the firms overall performance. if they don't like it, they can leave. nobody is yet arguing the base salaries should be adjusted lower-but they could.
the other option is to just let these firms fail if they continue to use the govt. money in questionable ways. and this might be a positive yet painful lesson in the end.
you can't have it both ways. if the market determines what competitive salaries are for the firms to survive the recession, these business' would have already collapsed. it is tacitly understood that the firms were not viable as is, why should salaries remain constant? the govt. determined that mass bank failures were in noones best interest so they stepped in. reductions in operating capital are the first thing that need to happen to make these firms solvent again.
yes bonuses are paid for merit and performance, but just because you bat 1000% doesn't mean the team wins. while it is easy to see one's own performance in a vacuum, people who work for huge corporations are held to the firms overall performance. if they don't like it, they can leave. nobody is yet arguing the base salaries should be adjusted lower-but they could.
the other option is to just let these firms fail if they continue to use the govt. money in questionable ways. and this might be a positive yet painful lesson in the end.
Posted on: 12 February 2009 by u5227470736789439
Dear Phil,
If some mythical banker were to be remunerated at say 100,000 GBP PA, what would you suggest might be the maximum reasonable annual bonus possible on top of that, given the current position?
Just curiosity on my part, but, as you seem to be taking the bankers' part in the main, it would be interesting to read what you consider is too much and what you would consider as acceptable in proportion to the "basic" salary, based on your position of sympathy ...
ATB from George
If some mythical banker were to be remunerated at say 100,000 GBP PA, what would you suggest might be the maximum reasonable annual bonus possible on top of that, given the current position?
Just curiosity on my part, but, as you seem to be taking the bankers' part in the main, it would be interesting to read what you consider is too much and what you would consider as acceptable in proportion to the "basic" salary, based on your position of sympathy ...
ATB from George
Posted on: 12 February 2009 by Don Atkinson
quote:I note that no-one's attacking salaries, merely bonuses................
............It is not for us or the government to decide what 'appropriate' is.........
.........Finally, and again, if we consider that the whole sector is out of control and needs regulating, we should do this globally, and not just within the institutions we have a stake in.
Phil, read my posts again. I am attacking disproportionate salaries, as well as large bonuses.
I do consider it appropriate that the Government, as representative shareholder AND leader of our community, should legislate on salaries if the banks can't or won't control themselves.
And I have consistently said that the big economies need to act together to get rid of this arrogant, self-serving, greedy culture.
Cheers
Don
Posted on: 12 February 2009 by Phil Cork
I think i'm being entirely misunderstood(apart from Jim perhaps, thanks Jim)!!
I think people have assumed that I support people earning massive bonuses - that's not where i'm coming from.
If we live in a capitalist world, and we (largely) do, then we need to let market forces determine what happens to companies - that's how the market works. Sometimes things escalate hugely or decline rapidly due to those very market forces. It's not an exact science - read Black Swan. Now in this case, and due to an uncontrollable decline in the banking sector, the Government has stepped in and interfered with the workings of the free market in order to (foremost) protect the nation's economy and the public who have a financial interest in the organisations. In short, this issue has become too big to let them fail.
Were we talking about Rover, Ford, or Chysler I would say let them fail. The state propping up companies that continue to churn out uncompetitive and inferior products does no good in the long term. The initial US response to the influx of 'Asian' cars (Hyundai, Toyota etc) was to legislate against them. This has done them no good whatsoever in the long term, and in these and a number of areas US technology in gereral has suffered from such protectionism.
I'm a taxpayer, and pay a not inconsiderable amount of tax (not levels commensurate with a 500 series unfortunately - let's not forget whose forum this is). If the government has chosen to use mine and your money to keep these banks going, then I am determined that they should not just accept that money, but generate a return on the investment we're all making. I seriously don't expect that any of you would disagree with me here?
Now, where we seem to differ is the means by which the banks chose to generate that return, and the extent to which the Government should control how the money is used by the institution. I've pointed out that certain controls are positive, and are targeted at addressing the immediate symptoms of the banking crisis - ie insufficient capital, reduced inter-bank lending etc. This action should provide the immediate effect of propping up the institutions, preventing them from failing, and allowing them to continue to exist. In this respect, it's a knee jerk to prevent widespread collapse and stimulate the money markets, and is intended to achieve that short term aim. Note that it's less about attacking the root causes of the collapse, as these a numerous and require a fair amount of study and subsequent regulation. It's more about overcoming the symptoms of the underlying issues in order to keep the banks heads above water.
Now recall when this initially kicked off. The US sub-prime market was blamed for the initial problems, and our ties into it through the purchasing of loans for profiteering etc were cited as the reason for the more widespread effects. People seem to have forgotten this - 'subprime' is hardly mentioned in the news articles now, as the word 'bonus' has become more exciting and creates a huge amount more public interest in whichever news programme is selling it. How many old ladies are going to be standing in Boots (I would have said Woolworths) discussing subprime mortgages versus how many might discuss those "disgusting bonuses that the bankers earn - with OUR MONEY!"
Let's prop the banks up and allow them to continue to exist, if that's what we've decided to do. Having decided to do that, let's place pretty stringent demands on them in terms of generating a return on our investment - the terms of the loan. They should repay the taxpayer with interest within pre-determined timescales - I mentioned earlier that Northern Rock had already achieved that to some extent. Let's not go so far (at this stage) in terms of restricting the means by which they achieve that return. By all means make the penalties for not achieving it according to plan severe, but let's not imagine that simply because it's our money being used that we should be able to control every aspect of how the institutions run their businesses. Again, let's not forget that these banks will have to play in a competitive global market against banks which have more freedom to operate. Let's be careful not to disadvantage our bank in case it fails in the free market - we don't want to have to prop it up again and throw good money after bad.
The dynamics of the free market are extremely complex and variable. What happens for example if a banking sector selling mortgage products ceases to receive bonuses on the number of mortgages they sell - you can imagine that they'll sell less mortgages - human nature. Not an ideal state of affairs at all - I'm sure we'd all like to think that people would do their jobs for their salary alone, and in other sectors where it's not an expectation, they do. However, in this market, and furthermore, according to their terms of employment, people are rewarded above their basic salaries for achieving sales and business growth. Are we really ready to demand that this cease, within 'our' banks only, and overnight? Are we sure that we're helping provide the right conditions within our bank to generate a return on our investment?
Are we?
Perhaps all these highly demoralised and concerned banking staff should wake up tomorrow and decide that they're going to change how they work and go all out continuing to work 60-100 hour weeks for the love of the job and their basic salary? Is that likely? I fear not. Idealistic, and not very realistic. Meanwhile therefore, we need our bank to continue to reward certain people in a manner which creates the results we need. People that will get results, people that, correctly incentived, will go all out to achieve what we need them to in order to protect our investment. Again, the world doesn't suddenly become all utopian in times of crises, people don't suddenly decide that they'll continue to put their job before their life for considerably less pay.
No doubt that bonuses are one of many contributing factors which need to be addressed. However, not necessarily due to the amounts of money spent on them (which is what creates the indignation that we've seen), but due to the behaviours that they promote. That they're often paid at the point of the deal/sale, not on whether the deal still proves viable 3,10,20 years down the line is a contributing factor. Andy Hornby said as much the other day. I note that few people are crying out for bonuses to be paid in a different manner (which is probably what should happen), they're simply crying out for them to be abolished. Ignorant of the facts i'm afraid.
To come back to your points specifically:
CSL - I'm not saying salaries should remain constant, I'm saying the Government shouldn't be extremely cautious about meddling in the remuneration packages of only the banks they 'own' if they want them to survive in the market.
George - I have no idea, and with respect, neither do you, so I won't speculate to fuel additional rants in this thead. I'm not even taking the banker's part, I'm questioning the extent to which the Government, in responding to rampant and narrow-minded blaming of a single factor in the bank's collapse, ie bonuses, should impose potentially harmful restrictions on the banks. Hell if you read what i've said i've not even defended the culture of ridiculous-sized bonuses.
Don - my apologies, I was talking in the general sense. I agree entirely with your final point, and suggest that that should be achieved with careful consideration, across the board, not just within the institutions which have been bailed out.
In short guys, I'm attacking the uproar, the media-led lambasting of 'bankers' with no distinction as to which individuals within the institutions are responsible, the lack of attention focused on the public who've overextended themselves and now blame the banks, the public themselves for being swept along in a wave of 'anti-banker' and 'anti-bonus', and finally, the Government for their image-centric approach to coping with public outrage.
Phil
I think people have assumed that I support people earning massive bonuses - that's not where i'm coming from.
If we live in a capitalist world, and we (largely) do, then we need to let market forces determine what happens to companies - that's how the market works. Sometimes things escalate hugely or decline rapidly due to those very market forces. It's not an exact science - read Black Swan. Now in this case, and due to an uncontrollable decline in the banking sector, the Government has stepped in and interfered with the workings of the free market in order to (foremost) protect the nation's economy and the public who have a financial interest in the organisations. In short, this issue has become too big to let them fail.
Were we talking about Rover, Ford, or Chysler I would say let them fail. The state propping up companies that continue to churn out uncompetitive and inferior products does no good in the long term. The initial US response to the influx of 'Asian' cars (Hyundai, Toyota etc) was to legislate against them. This has done them no good whatsoever in the long term, and in these and a number of areas US technology in gereral has suffered from such protectionism.
I'm a taxpayer, and pay a not inconsiderable amount of tax (not levels commensurate with a 500 series unfortunately - let's not forget whose forum this is). If the government has chosen to use mine and your money to keep these banks going, then I am determined that they should not just accept that money, but generate a return on the investment we're all making. I seriously don't expect that any of you would disagree with me here?
Now, where we seem to differ is the means by which the banks chose to generate that return, and the extent to which the Government should control how the money is used by the institution. I've pointed out that certain controls are positive, and are targeted at addressing the immediate symptoms of the banking crisis - ie insufficient capital, reduced inter-bank lending etc. This action should provide the immediate effect of propping up the institutions, preventing them from failing, and allowing them to continue to exist. In this respect, it's a knee jerk to prevent widespread collapse and stimulate the money markets, and is intended to achieve that short term aim. Note that it's less about attacking the root causes of the collapse, as these a numerous and require a fair amount of study and subsequent regulation. It's more about overcoming the symptoms of the underlying issues in order to keep the banks heads above water.
Now recall when this initially kicked off. The US sub-prime market was blamed for the initial problems, and our ties into it through the purchasing of loans for profiteering etc were cited as the reason for the more widespread effects. People seem to have forgotten this - 'subprime' is hardly mentioned in the news articles now, as the word 'bonus' has become more exciting and creates a huge amount more public interest in whichever news programme is selling it. How many old ladies are going to be standing in Boots (I would have said Woolworths) discussing subprime mortgages versus how many might discuss those "disgusting bonuses that the bankers earn - with OUR MONEY!"
Let's prop the banks up and allow them to continue to exist, if that's what we've decided to do. Having decided to do that, let's place pretty stringent demands on them in terms of generating a return on our investment - the terms of the loan. They should repay the taxpayer with interest within pre-determined timescales - I mentioned earlier that Northern Rock had already achieved that to some extent. Let's not go so far (at this stage) in terms of restricting the means by which they achieve that return. By all means make the penalties for not achieving it according to plan severe, but let's not imagine that simply because it's our money being used that we should be able to control every aspect of how the institutions run their businesses. Again, let's not forget that these banks will have to play in a competitive global market against banks which have more freedom to operate. Let's be careful not to disadvantage our bank in case it fails in the free market - we don't want to have to prop it up again and throw good money after bad.
The dynamics of the free market are extremely complex and variable. What happens for example if a banking sector selling mortgage products ceases to receive bonuses on the number of mortgages they sell - you can imagine that they'll sell less mortgages - human nature. Not an ideal state of affairs at all - I'm sure we'd all like to think that people would do their jobs for their salary alone, and in other sectors where it's not an expectation, they do. However, in this market, and furthermore, according to their terms of employment, people are rewarded above their basic salaries for achieving sales and business growth. Are we really ready to demand that this cease, within 'our' banks only, and overnight? Are we sure that we're helping provide the right conditions within our bank to generate a return on our investment?
Are we?
Perhaps all these highly demoralised and concerned banking staff should wake up tomorrow and decide that they're going to change how they work and go all out continuing to work 60-100 hour weeks for the love of the job and their basic salary? Is that likely? I fear not. Idealistic, and not very realistic. Meanwhile therefore, we need our bank to continue to reward certain people in a manner which creates the results we need. People that will get results, people that, correctly incentived, will go all out to achieve what we need them to in order to protect our investment. Again, the world doesn't suddenly become all utopian in times of crises, people don't suddenly decide that they'll continue to put their job before their life for considerably less pay.
No doubt that bonuses are one of many contributing factors which need to be addressed. However, not necessarily due to the amounts of money spent on them (which is what creates the indignation that we've seen), but due to the behaviours that they promote. That they're often paid at the point of the deal/sale, not on whether the deal still proves viable 3,10,20 years down the line is a contributing factor. Andy Hornby said as much the other day. I note that few people are crying out for bonuses to be paid in a different manner (which is probably what should happen), they're simply crying out for them to be abolished. Ignorant of the facts i'm afraid.
To come back to your points specifically:
CSL - I'm not saying salaries should remain constant, I'm saying the Government shouldn't be extremely cautious about meddling in the remuneration packages of only the banks they 'own' if they want them to survive in the market.
George - I have no idea, and with respect, neither do you, so I won't speculate to fuel additional rants in this thead. I'm not even taking the banker's part, I'm questioning the extent to which the Government, in responding to rampant and narrow-minded blaming of a single factor in the bank's collapse, ie bonuses, should impose potentially harmful restrictions on the banks. Hell if you read what i've said i've not even defended the culture of ridiculous-sized bonuses.
Don - my apologies, I was talking in the general sense. I agree entirely with your final point, and suggest that that should be achieved with careful consideration, across the board, not just within the institutions which have been bailed out.
In short guys, I'm attacking the uproar, the media-led lambasting of 'bankers' with no distinction as to which individuals within the institutions are responsible, the lack of attention focused on the public who've overextended themselves and now blame the banks, the public themselves for being swept along in a wave of 'anti-banker' and 'anti-bonus', and finally, the Government for their image-centric approach to coping with public outrage.
Phil
Posted on: 12 February 2009 by GraemeH
quote:
In short guys, I'm attacking the uproar, the media-led lambasting of 'bankers' with no distinction as to which individuals within the institutions are responsible, the lack of attention focused on the public who've overextended themselves and now blame the banks, the public themselves for being swept along in a wave of 'anti-banker' and 'anti-bonus', and finally, the Government for their image-centric approach to coping with public outrage.
Phil
One broadsheet was slightly more discerning with captions underneath their mugshots that read:
Good Guy, Good Guy, Banker, Good Guy, Banker, Banker......you get the gist.
Graeme
Posted on: 12 February 2009 by zorba
I see that people have taken offence to the 'big four' blaming the regulators for allowing them to get away with certain practices. I see no-one's blaming the public for taking out mortgages they couldn't afford, or buying more on their credit cards than they could pay back.
So the public is blameless, the poor victim in all of this, sold ridiculous mortgages by unscrupulous 'bankers'...?
Good grief.
Phil[/QUOTE]
RESPONSIBLE LENDING is supposed to be BANKING POLICY. It looks like although there are fat salaries being paid some decision makers cannot do simple maths and evaluation of character which ends up harming the individual. The same has happened further up the tree and the harm has come to the whole nation.
So the public is blameless, the poor victim in all of this, sold ridiculous mortgages by unscrupulous 'bankers'...?
Good grief.
Phil[/QUOTE]
RESPONSIBLE LENDING is supposed to be BANKING POLICY. It looks like although there are fat salaries being paid some decision makers cannot do simple maths and evaluation of character which ends up harming the individual. The same has happened further up the tree and the harm has come to the whole nation.
Posted on: 12 February 2009 by u5227470736789439
quote:The dynamics of the free market are extremely complex and variable. What happens for example if a banking sector selling mortgage products ceases to receive bonuses on the number of mortgages they sell - you can imagine that they'll sell less mortgages - human nature. Not an ideal state of affairs at all - I'm sure we'd all like to think that people would do their jobs for their salary alone, and in other sectors where it's not an expectation, they do. However, in this market, and furthermore, according to their terms of employment, people are rewarded above their basic salaries for achieving sales and business growth. Are we really ready to demand that this cease, within 'our' banks only, and overnight? Are we sure that we're helping provide the right conditions within our bank to generate a return on our investment?
Dear Phil,
The dynamics of the marketplace are indeed so unknowable that even the timing of a downturn cannot be predicted with any certainty.
The point about fewer mortgauges is very apt.
The reason bonuses should be abolished, or radically curtailed, is that the bonus becomes the motivation for growing sales, which in fairness not only was obviously a bad thing, but serrves only to exascerbate the boom bust bubble situation we are seeing burst at this time. Personal gain before corporate responsibility.
Responsible lending in the mortgauge market produces a small amount of bad debt and reposession of property because of bad luck, and even reasonable checking of applicants occasionally fails to weed out unsuitable cases, but lending irresponsibly leads to a much larger problem as we are witnessing.
It is possible to see the political hand behind this in the US with encouragement of FredieMac, and FannyWae definately entering the sub-prome mortguage sector with US Governement encouragement. Lending money to people that there is statistically next to no chance of them paying back is not responsible lending.
Encouraging growth in the sector is actually an irresponsible policy. There is a sustainable level of mortguage business that has been responsibly managed without major problem for a very long time. Of course there were bumpy patches, but nothing like the madness of the last say ten years and the current bubble bust, and not generally previously caused by mortgauge lending.
On the issue of bonuses relating to business grown, I do have a simple solution. Simply pay the bonus on retirment or at the earliest say 55 years of age in the case of earlier retirement. That would lead to a set of priorities that produce stable and sustainable growth ...
Of course it would require a concerted approach to regulating bonuses from the major economies of say the G7 group at least, for sense to return.
____________
On the issue of Government not being the best placed to run banks or any other large business, I almost agree. But I would prefer the NHS, for example to what pertains in the US, and that is a government run organisation.
I am sure you are right that the Government is not the most suitable organisation to run the banks in the UK, but for certain the banks must stop resisting Governbment regulation of their activities. Necessarily regulation will occasionally be a blunt instrument, but the advantage of stability and safety is surprisingly attractive to investors if they are informed of the risk strategy of the alternatives. Think of the Icelandic banks, where the sector grew too large for the supporting tax-payer base to save without external aid. What a mess.
If regulation means that Investment Banking moves overseas to some extent, then so be it, so long as the remaining UK based organisations are safely and correctly regulated.
_______________
If bankers cannot get mortaguage lending right, then perhaps it should be regulated so as to actually outlaw 100% mortguages - even stipulating a minimum legal proportion [of the house cost] of deposit, and a maximum amount of lending related to the protential mortguagee's earnings to say three and a half times, which was the old bench-mark.
Yes, I think we are going to expect the Governement [of whatever political stripe] to take the firm reign with bankers from now on, so as to ensure that their personal self-interest [greed in the emotive vocabulary of the boulevard press] never again produces such colamitous consequences.
______________
You suggest that you have no idea what proportion of a salary might be paid in addition? And also suggest that I would have no idea. I do have an idea. Whether it starts a firestorm or not I will say a one twentieth part of the gross annual salary may be added to the salary in any year - across the board for all empoloyements - as a stautory maximin. Any further must wait till retirement in the main, or 55/death, whichever comes first - held in trust on the balance sheet of the company, not outside it, giving the employee with bonus money at stake every incentive to see that company is well run and long term stable. This would cure the problem of distorting and destroying responsible business practice at a stroke, and not just in the banking sector. Of course I mentioned the G7 earlier, and it would take concerted action in each country to make it work, but the mood is right all round the world after this catastrophe.
________________
Incidentally, in no way do I absolve Mr Brown's administration in the UK for its part in failing to oversee the banking sector with susficient rigour. You may have noted that I have been a critic of Mr. Brown both as PM and Chancellor during my entire membership of this Forum. It used to be that people would argue with me, but it seems there is not one left who would defend him now ...
ATB from George
Posted on: 12 February 2009 by Bananahead
I suspect that most sales jobs pay commission. Making a connection between bonuses and number of mortgages sold immediately changes the word bonus to commission. This means that you need to limit all commission to a tiny percentage of salary as well.
I would be very carefull about wishing away the UK's financial services industry if it really is around 9% of GDP.
Random link
Although the banking crisis may be linked to irresponsible mortgage lending in the USA it should also be noted that most financial organisations currently experiencing difficulties were not doing the actual lending.
I would be very carefull about wishing away the UK's financial services industry if it really is around 9% of GDP.
Random link
Although the banking crisis may be linked to irresponsible mortgage lending in the USA it should also be noted that most financial organisations currently experiencing difficulties were not doing the actual lending.
Posted on: 12 February 2009 by Bruce Woodhouse
Phil Cork wrote
Phil
This bit seems to illustrate a key issue.
What you says suggests the system is purely about growth. Not sustainable business, not a situation where making bad deals (or bad lending) is seen as negative. If bonuses are such a significant percentage of income is it any wonder that policies have been sold inapropriately, or that the focus appears to have been sell at all costs short-termism?
Staff are not going to work for free and I understand that human nature requires incentives, and money is a potent one. However it is what it is linked to that seems a key. If bonuses are linked to good lending, to sustainable business, to ethical and compliant performance that is a lot better for the economy as a whole (and ultimately their own jobs) than just flogging mortgages to anybody.
The industry should pay sensible salaries, monitor performance, aim to provide secure and lasting employment. Provide promotion as incentives rather than cash handouts-because that also carries with it responsibility. It could switch the focus from quick cash by offerring staff perks such as lending on preferential rates or lower cost investments-again these carry some responsibilities and have a longer term focus.
You say this market is 'different'. I don't see why it should be, and maybe it is broken and should change?
Bruce
(I'll cautiously offer a personal example, I was not planning a debate on how GP's are paid! The old GP contract essentially focussed on rewarding volume. You earned extra for having more people registered with you, with little or no emphasis on the quality of care they received. The new contract focuses a significant proportion of income on quality, and these complex measures are not just about the short term but include providing tight control of chronic illnesses that we know is rewarded in the long term by less morbidity and mortality. The system is far from perfect but it was a paradigm shift that has radically altered the philosophy of care and practice priorities. It can happen. Money [both sticks and carrots] provided an incentive but the philosophy behind the change was sound and will be rewarded long term.)
quote:The dynamics of the free market are extremely complex and variable. What happens for example if a banking sector selling mortgage products ceases to receive bonuses on the number of mortgages they sell - you can imagine that they'll sell less mortgages - human nature. Not an ideal state of affairs at all - I'm sure we'd all like to think that people would do their jobs for their salary alone, and in other sectors where it's not an expectation, they do. However, in this market, and furthermore, according to their terms of employment, people are rewarded above their basic salaries for achieving sales and business growth. Are we really ready to demand that this cease, within 'our' banks only, and overnight? Are we sure that we're helping provide the right conditions within our bank to generate a return on our investment?
Phil
This bit seems to illustrate a key issue.
What you says suggests the system is purely about growth. Not sustainable business, not a situation where making bad deals (or bad lending) is seen as negative. If bonuses are such a significant percentage of income is it any wonder that policies have been sold inapropriately, or that the focus appears to have been sell at all costs short-termism?
Staff are not going to work for free and I understand that human nature requires incentives, and money is a potent one. However it is what it is linked to that seems a key. If bonuses are linked to good lending, to sustainable business, to ethical and compliant performance that is a lot better for the economy as a whole (and ultimately their own jobs) than just flogging mortgages to anybody.
The industry should pay sensible salaries, monitor performance, aim to provide secure and lasting employment. Provide promotion as incentives rather than cash handouts-because that also carries with it responsibility. It could switch the focus from quick cash by offerring staff perks such as lending on preferential rates or lower cost investments-again these carry some responsibilities and have a longer term focus.
You say this market is 'different'. I don't see why it should be, and maybe it is broken and should change?
Bruce
(I'll cautiously offer a personal example, I was not planning a debate on how GP's are paid! The old GP contract essentially focussed on rewarding volume. You earned extra for having more people registered with you, with little or no emphasis on the quality of care they received. The new contract focuses a significant proportion of income on quality, and these complex measures are not just about the short term but include providing tight control of chronic illnesses that we know is rewarded in the long term by less morbidity and mortality. The system is far from perfect but it was a paradigm shift that has radically altered the philosophy of care and practice priorities. It can happen. Money [both sticks and carrots] provided an incentive but the philosophy behind the change was sound and will be rewarded long term.)
Posted on: 13 February 2009 by lutyens
Bruce
Without expanding the discussion too much.....my understanding was that the additional income the GPs got because of the larger number of patients with them was originally intended to be a reflection of the additional work required for such a practice...you did more, you got paid to reflect that. What happened was that this was effectively exploited so that if you increased your patient lists then you got more money. In the end because there was no control/assessment on 'quality' the value for money was finally questioned and the system changed. Now I'm not trying to indict doctors, simply that in any system some will exploit it. The same critisisms have been leveled at dentists over the past 20 years or so.
I worked in a collective for nearly ten years. We all got paid exactly the same from the cleaner to the 'profeesional'. It was great however as the group grew you ended up with some people who were not as commited as others and didn't work quite as hard as the others. For a while this is tolerated but eventually devisions set in...I'm more equal/important than you etc...It eventually went under under extreme political divisions....this was the end of the 80's...it was very unpleasant.
I remain very concerned about bonuses and this arguement about if I don't give them a bonus they will go and work for another bank that will.....frightful....but I now work in a company that has an acceptable basic salary and then we all share in the profit the company makes. Some will get more if they have done really well to increase the profit this year and we all don't get much if we are not so successful....such as this year. The most important thing is that it is transparent, to everyone. It may not be perfect but it works for us....about 200 people.
So as you say Bruce there are models that work reasonably well and they can be transfered.
james
(Thatcher and her acolytes have so much to answer for)
Without expanding the discussion too much.....my understanding was that the additional income the GPs got because of the larger number of patients with them was originally intended to be a reflection of the additional work required for such a practice...you did more, you got paid to reflect that. What happened was that this was effectively exploited so that if you increased your patient lists then you got more money. In the end because there was no control/assessment on 'quality' the value for money was finally questioned and the system changed. Now I'm not trying to indict doctors, simply that in any system some will exploit it. The same critisisms have been leveled at dentists over the past 20 years or so.
I worked in a collective for nearly ten years. We all got paid exactly the same from the cleaner to the 'profeesional'. It was great however as the group grew you ended up with some people who were not as commited as others and didn't work quite as hard as the others. For a while this is tolerated but eventually devisions set in...I'm more equal/important than you etc...It eventually went under under extreme political divisions....this was the end of the 80's...it was very unpleasant.
I remain very concerned about bonuses and this arguement about if I don't give them a bonus they will go and work for another bank that will.....frightful....but I now work in a company that has an acceptable basic salary and then we all share in the profit the company makes. Some will get more if they have done really well to increase the profit this year and we all don't get much if we are not so successful....such as this year. The most important thing is that it is transparent, to everyone. It may not be perfect but it works for us....about 200 people.
So as you say Bruce there are models that work reasonably well and they can be transfered.
james
(Thatcher and her acolytes have so much to answer for)
Posted on: 13 February 2009 by Phil Cork
Bruce.
I think i've made the point several times that this should be about sustainable business. Businesses need to continue to grow in order to remain viable:
James, I'm not defending the practice, but being realistic that it exists. To expect it's overnight disappearance not to have an effect is fanciful.
Phil
I think i've made the point several times that this should be about sustainable business. Businesses need to continue to grow in order to remain viable:
quote: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.
quote:No reason at all why, over time, the banking sector couldn't operate on the same basis.
What you can't do is impose this 'overnight' with little thought as to the consequences, and what you definitely can't do is impose it only on those banks in the UK in which the Government/taxpayer has an interest.
This can't initially be an idealogical argument, it needs to be a practical one which allows the institutions concerned to sustain themselves or even thrive in the current market conditions, in order to generate a return on our investment when pitted against their competitors.
Banking reform will need to be a strategic, long term, process. Reforming a mere subset of the industry that we happen to believe we own will likely backfire yielding worse results.
quote:Again, I'm not defending huge or ridiculous bonuses, but the right of the senior management of these institutions to determine what is appropriate remuneration for the staff they need to get back on track. It is not for us or the government to decide what 'appropriate' is.
Finally, and again, if we consider that the whole sector is out of control and needs regulating, we should do this globally, and not just within the institutions we have a stake in. Such regulation should address a number of issues, not just the emotive ones like bonuses. How about short selling in financial stocks, selling mortgages at 5-6 times salary...
quote:No doubt that bonuses are one of many contributing factors which need to be addressed. However, not necessarily due to the amounts of money spent on them (which is what creates the indignation that we've seen), but due to the behaviours that they promote. That they're often paid at the point of the deal/sale, not on whether the deal still proves viable 3,10,20 years down the line is a contributing factor. Andy Hornby said as much the other day.
James, I'm not defending the practice, but being realistic that it exists. To expect it's overnight disappearance not to have an effect is fanciful.
Phil