Thanks for all the comments providing the balance to my promotion of the idea that bankers deserve their bonuses yesterday. Here’s the contrarian view I could have put forward, but left out:
How could you possibly agree with the idea that bankers deserve their bonuses, you schmuck?
That’s just darned foolish, as bankers just do not deserve their bonuses.
In fact, President Obama is ridiculous for even allowing bankers to have any payout at all, let alone $500,000 worth. If a bank is bankrupt, has had billions from the government taken from the taxpayer's pocket, then any idea of paying a banker a bonus is just mad.
Even if a bank makes money and has had no governmental support, there should be limits.
For example, yesterday there was mention of an investment banker who gets a £20 million payout for making millions for the bank.
Great.
But where’s the clause that says he has to pay that £20 million back the year after, particularly if he or she loses the bank millions.
Where is it?
There is no clause to get the cash back and there’s the rub: bankers make silly money in the good times but, in the bad times, they just run away with it.
How foolish is that?
And then you talk about breaking a job contract, but where in the employment contract does it say that when the firm is bust you still get a payout?
When I worked for a firm that went into Chapter 11, where was my bonus that year?
There wasn’t one of course, you dolt, because the company was bankrupt.
If the firm is bankrupt of course you don’t get a payout, because there’s no money to payout.
So why should anyone in a bank that’s losing money and going bankrupt get a payout?
No way fool!
If there’s no profit, there’s no bonus.
Equally, you make the comparison with a waiter in a restaurant or a housekeeper in a hotel but that’s pure distraction. A banker, teller or call centre worker has nothing in common with a waiter or housekeeper, because the former have a salary whilst the latter live on their tips.
You cannot even relate the two together.
Similarly, you say it’s just a matter of scale, but a call centre worker or teller is typically getting a few percentage points on their salary for meeting targets that include company performance, not a thousand times salary for getting lucky in having their bets payoff.
Bottom line: bankers don’t deserve bonuses. If the firm is losing money, then there should be zero bonus and, even if it’s making money, bonuses should be limited to some salary related multiple, not millions for just being lucky.
That's better and glad to get that off me chest.
Meanwhile, some interesting commentary from the Independent's Jeremy Warner on the subject.
Also of note was the announcement from Credit Suisse that they would be paying bonuses in the form of toxic debt, whilst UBS have implemented 'clawbacks' on bonus payments and deferred last year's bonuses which, according to the Wall Street Journal, raises questions about the long-term viability of their investment banking operations.
If anything the current crisis has reminded us how critical banks and bankers are to our lives. The question is: How do we re-establish a banking industry that sustainably serves the broader economic interests of all.
The revelation of how acutely self serving the culture of bankers and banking has become has come as a shock to many. However having worked my whole life in the city I know that the majority of those I have worked with understood they were there to extract as much money as they could for themselves as quickly as possible. We knew we offered less to society than a surgeon or an architect. We even new we offered pretty low value for money to shareholders and clients- but that was never the point- Even though we did work hard, loosely structured performance related remuneration allowed us to secure frankly ridiculous amounts of money to do pretty average work. I have always found it surprising that people ever lapped up the idea that we should receive extra money for just doing our job properly. Also, as we all knew, superior returns were more often than not based on a)good fortune, b)under pricing of risk and c)simply being around during one of the longest periods of economic growth in global history. Find me those superior returns now that risk is being repriced and we have global recession- perhaps revealingly we are now left solely reliant on our skill and good fortune, and its not a pretty picture.
What is perhaps more astounding is that it has only been since the government has arrived as a majority shareholder that anyone has thought to challenge the idea that we should keep getting healthy bonuses even if we are losing money on a grand scale. It very much illustrates how shareholders have totally lost control of the companies they own to their executives. As new governmental owners make moves to re-establish shareholder control the range of bizarre executives responses have only gone to reveal just how over-extended their collective sense of entitlement has become. Frighteningly -if anything- the media underplays the level of hubris amongst mid to upper management. It is not a secret that some very well remunerated managers in government bailed out banks have been threatening to walk while actively leaving chaos in their wake, unless they get a substantial bonus. The argument being that these remuneration levels are low relative to the sums at stake. I think in Chicago in the 20s they used to call this kind of racket a 'Shake-down'.
The sooner this disastrously damaging culture is broken, and errant managers and executives are brought to heal or shown the door, the sooner we might feel more optimistic about a achieving a banking industry that serves our broader economic interest. Tighter regulation will help restrain the worst excesses, however it will never establish a change of attitude. Besides the city is rightly confident it will always manage to be a couple of steps ahead of the regulators. Ironically Thatcher very clearly showed us what needs to be done when those working within a whole economic sector form a self interested cabal that threatens our wider economic interests.
- You make it very clear to them that if they do not quickly adjust to the new status quo they will not survive.
- Encourage the introduction of new entrants who offer better value for money, and a more sympathetic business culture.
- Help re-establish strong active shareholder control.
It will then just be up to individual bankers to decide whether they really do just want to walk away. I would suggest our banking industry would be well rid of those who do.
Posted by: Roger Salty | March 21, 2009 at 07:51 PM