Bonuses for Bankers

Can’t see a thread on this, which surprised me.

Apparently if RBS don’t give their staff big bonuses, the staff will go elsewhere to work . . .

given the state the banks are currently in, that might actually be a good idea.

Any suggestions to what sort of job might suit a person whose skills are “being a merchant banker”

yes lets give them more money what a great idea, they’ve done so much good with all that they’ve had/invented so far!

all fair attacks, however, I suggest that it wasnt individual bankers that got it wrong.

I still dont think they should get a bonus unless they individually exceeded targets. But there’s been more than enough slagging off of perfectly good people by the rest of the country who neither understand banking nor understand what an individual employee of a bank does for a living and whether or not they have a contributed to the current recession.

looks like a witch, smells like a witch. Burn the witch eh?

Yeh, Burn em, burn em all!!!!

Agree with that in part, and I’ve still earned a bonus when the business I worked in hasn’t performed as a whole as expected but nothing on the scale of banks. Not sure who you think are justified in earning bonuses Stoner, I’d be intrested to hear. I expect there are some who have limited losses and whose investments/trades have generated profits but surely they must be in the minority in the face of such huge losses and write downs?

Let’s see – I’ve just delivered a project at about £150k under budget.
It’ll save my employer (NHS, ie you the taxpayer), £350k a year forever AND deliver a more effective and faster diagnostic service (cancer patients will be diagnosed up to 3 weeks earlier, so some lives may saved as a bit of an extra). Bonus? No danger.
On the other hand, had I OVER spent by say £12 BIllion,and delivered a service which brought the economy to it’s knees and cost thousands of people their jobs, I might have got a decent bonus.
****, my priorities are all wrong.

Seems a bit mean. Most “bankers” work in call centres / admin / back office / cashiers / tellers etc. Picture a big bank, 30,000 employees. Maybe 20 directors on a few million, 30-40 big traders / investment managers on 500k. These 60 may well be responsible for most of the current problems.

Remaining 29,940 employees are just employees – who followed a process / script etc and have as much to do with the crisis as all the plumbers, builders and bike shop staff who also borrowed too much money. These 29,940 earn very little, and were promised a bonus if they exceeded the targets set for someone on their pay grade, and deserve one if they did.

……….the rest of the country who neither understand banking nor understand what an individual employee of a bank does for a living ……..

Ah, but do bankers understand banking ? 😕

.

BTW, my firm has carried out an approx 20% cut in wages across the board. Not because we’re not preforming well as before – in fact it’s fair to say that productivity has increased recently. But because the construction industry has been so fukked up.

By others.

Bonuses can be taken away as usually they are a discretionary payment. Let them go elsewhere, time for a review of payment policies. I suspect no one will move if they lose a bonus.

it’ll change once the shareholders have the balls to stand up and vote against excessive exec remuneration payouts and put in place proper reward policies linked to performance – ones that they’ll have to stick to

But because the construction industry has been so fukked up.

By others.

No, by yourselves. The construction industry has spent the last 10 years borrowing cheap money to buy family houses, knock them down and turn each of them into 10 crappy new 1.5 bedroom flats with no gardens to sell for half the price of the house. Now everyones worked out such a poor flat is not worth more than £10, the construction company can’t pay back those loans. So we have a glut of flats, falling prices and no new construction work. Your company, productive or not, is failing to pay of its debt, so the banks writing off the SPVs and ABSs it bundled the loan into. Too many housing losses takes the bank out.

So its all your fault really!

Allowing the top executives and the hedge-fund pirates to walk away with just their lives would be a bonus…

Stoner – given the state of quite a few banks I’d suggest quite a few in banking failed to understand it as well – or do you mean that going broke is a success in todays climate ? I take your point about individual employees, especialy at lower levels but it’s not painting a pretty picture to me – bit like the CSA – a well regarded and sucessful public sector institution that also pays bonuses :+)

Would you care to bung all the Woolies staff a few quid each – most of them were ok but it’s still down the crapper (* and I bet the exec did ok out of that). And I’ve not heard the banks asking for a 10% pay cut like a lot of other people are having to put up with.

Still I think you might have lucked out – maybe the public sector owned banks will get final salary pension schemes as a reward for a job well done……

Obama seems to have the right idea, I hate to say it but perhaps we should follow the US on this one.

Well why should you get a bonus?
Don’t bankers already have a wedge?
Do doctors get bonus if they save more life? Do teachers get bonus if they teach more children how to read? Do bin man get bonuses if they collect more litter? Do soldier get a bonus if they kill more people?

I don’t think so. So why people that are already paid for a job should get a bonus. Specially that the only thing banks managed to do if **** up the economy. I am pretty pissed that my government gave several millions of euros to the banks so that shareholders could get them a big bonus. I suspect that RBS will not go anywhere as the banking industry is not in a good state (actually was the banking industry ever in the good state).

It’s time to ditch capitalism me think… The system do not work as the several crisis in the last 40 years have proved(proven).

more of the usual blinkereed rubbish from juan et al.

and all but a few of you understand quite what I meant.

a “banker” didnt screw up either your industry or your economy. The way “banking” had developed, did. The development of highly refined processed foods is leading to an increase in obesity driven mortality, I dont hear too many calls for captain birdseye’s staff to be hung up from the lampposts.

The continued childish ranting at “bankers” just keeps reinforcing the view that the vast majority dont understand how the banking/credit system works, how it developed into something that failed, and so what you dont understand you fear, and what you fear you threaten.

Ive been over this ground too many times in here to give too much of a toss of trying to influence the opinions of the STW idiot brigade. But if just one person in here stops to consider the difference between systematic failures and individual culpability it might be a step forward. Until then, as you were…

Stoner can you please explain to us how the blck thursday was not a failure of banking system?
And if you re-read my post I use banks and not bankers as I know for certain that the guy in a branch have no control whatsoever on the procedures (actually I am not even client of a bank, I use la poste)

According to the paper yesterday. It seems that some high flyers in RBS will be getting some huge bonuses, which sticks in the craw, surely just be happy with the fact they have a high paying job and there is a standard bonus of 10% for others. “Oh you still work here, have 10%”. Unions said that it will casuse problems if the “bonus” is not paid. THe millions are not going to the many but to the few.

Anyway if they go through with it i’ll be changing banks. Kneejerk reaction i know but……

Stoner it may be the system which is at fault but bank workers/shareholders have still profited from it, and seem to see no reason why the party should end now despite government bailouts etc.

I was offered a 50% bonus the bonus was that I could keep my job but take a 50% pay cut. So I did a Carol Vorderman and told them to shove it and went and got another job.

I now earn half of what I used to earn but I am a hell of a lot happier.

Stoner, instead of being so patronising why don’t you explain your reasoning. Presumably you think that some ‘bankers’ should earn a bonus, and as I’ve said, I presume there are some very talented middle managers who have, for example, run brilliantly performing retail parts of the business and arguably deserve to be compoensated for this. It’s unclear who we are actually referring to in this thread but If my company had just recorded losses on that scale I would loose most of my bonus, it is discressionary and linked to business performance – Opex, profit & growth, all of which as a middle manager I can directly infulence.

Systemic failure it may have been, but the bankers presumably were partly responsible for it, I don’t profess to be the kind of expert you are on banking but surely those, for example, making ill informed decisions about badly credit rated securitsation do not deserve to be rewarded.

So who does??

consider the difference between systematic failures and individual culpability it might be a step forward. Until then, as you were…

There is a systematic failure, caused by a combination of factors, one of which is ridiculous short term incentives thanks to the insane bonus system. This systematic failure has also caused a massive increase in the perceived value of assets held, thus making it seem like these people are making a lot more profit than they really were, thus making it seem like it was worth paying them a lot more in bonuses than it really was. Now that has all unravelled, the idea that they are worth paying these bonuses for, and the idea that all this ‘talent’ will all suddenly jump ship* has been exposed as a myth, the idea of paying investment bankers and directors bonuses is idiocy.

In terms of individual culpability – it’s possibly true that except at the highest level (directors etc.), they were all taken in by the whole securitisation thing, and didn’t individually do anything bad, but it is also true that the performance measurement systems that they were working under were flawed, so whilst people were not individually at fault, they were almost certainly not performing anywhere near as well as they were thought to be, rather they were just riding a market bubble, in the main these aren’t really masters of the universe, they are just a bunch of very confident hangers on.

There you go, a systems approach to why bankers are all useless buggers and don’t deserve bonuses.

Seems a bit mean. Most “bankers” work in call centres / admin / back office / cashiers / tellers etc. Picture a big bank, 30,000 employees. Maybe 20 directors on a few million, 30-40 big traders / investment managers on 500k. These 60 may well be responsible for most of the current problems.

Surely the ones people are moaning about, getting the massive bonuses, *are* the traders / investment bankers, not the normal salaried staff in bank branches?

Joe

*not to mention the fact that not many banks are going on massive hiring sprees at the moment

I read yesterday that the proposed bonuses to be paid to RBS employees totalled £480million…. Fairly adds up so it does.

Surely bonuses are profit share schemes – company does well and you get loads, company does shite and you get nowt.

Wasn’t it a condition of the Govt handouts to banks that if they received a Govt handout they weren’t allowed to pay out exec bonuses?

joe’s been the closest to getting things in perspective.

What infuriates me is the blanket attack on all of those in the finance sector. It insults the thousands of people who work in finance who have no influence over the wider credit system and can only act within the framework others design and in a manner which is compatible with every one else in the market – it’s a herd mentality and while its effects are well documented and unpleasant (see south sea bubble, tuplip bubble, e-bubble read https://www.mises.org/) you can not lay the blame for it at the feet of an individual no matter how thirsty for blood you are.

As for bonuses, I have no idea who has earned or not their bonus this year, what tarfgets they were set and whether they are appropriate. The bonus system has failed because of the delinking of individual performance from global economic performance, hardly surprising really.

For those who have the slightest interest on learning why the system failed, read this “apology” by a trader. In reading it you should start to realise the interplay between many different operators in the gloabl finance and credit market and get some idea of why an individual financier is no more culpable than the office tea boy. If you dont, then I give up.

I agree with this, from the trader’s apology:

Are bankers overpaid and should bonuses be curtailed?

That bankers are generally overpaid can not be denied. A professor at Oxford might earn a fraction of what a trader does despite doing more worthwhile and more challenging work. However, there is no cronyism in banking. It’s all about the bottom line and you can be fired at the blink of an eye. Being a proprietary trader is probably the one of the most competitive and insecure jobs in the world. By paying far more in discretionary bonus than in basic salary banks can sidestep employment laws. There is no pension on the bonus, no sickness pay, no holiday pay and no redundancy. Some banks even pay a hefty chunk of the bonus into share plans that are confiscated if you leave to work elsewhere. Banks don’t give away money to their staff for the fun of it, they maximize their profits.

The market economy, of which Banking is a part, is not a ‘just system’. A lucky break made Bill Gates the richest man in the world. Sure he was talented but it still took a unique set of coincidences to get him to where he is today. Regulating wages in a market economy is neigh impossible, and if one is to start surely football would be a better choice. Instead we have taxes, on individuals and companies, and in the UK banks contribute far more than any other sector.

Just burn everyone and start again 😈

Joe

All very well, but you missed the money creation that banks do. let’s say you deposit £1000 with a bank. The bank knows you are unlikely to ask for more than certain percentage of that back at any one time, let’s say 10% to keep the sums easy. So they need to hold £100 in reserve to pay you what you might ask for, that gives them £910 to lend out and earn interest on. A loan is trreated like a deposit, ie if you borrow £910, you’re only likely to ask for £91, leaving £819 the bank can lend. If that sounds like tosh, bear in mind how much lending is done for mortgages and when you buy a house no real money changes hands, so that’s money the bank don’t actually need to have, only that they can claim to have and hacve security (the house) to back up that claim. This is called the bank multiplier, and in this example it’s 10. Ok, so fine and well. However, in recent years, technology has progressed away from money handling. Apart from beer, dinner money and shopping less than about £10, i hardly ever pay for stuff with money – books? Amazon, petrol? plastic, shiny bike bits? wiggle, motgage, insurance etc,? direct debit. That means that the bank needs to keep less in reserve to service my cash requirmwents, which ups the value of the bank multiplier. BUT in more and more cases, the mulitpier is not covered by assets, or the same asset is being used to cover all debts. Ok, dodgy, but workable so long as everyone has faith in the banks. So that’s Northern Rock for you. This also means that there’s a lot more apparent money in the economy than real money, so the assets being used to cover the debt become more valuable – house prices shoot up. But house prices are volatile, if they begin to fall, then the debts are not covered by the value of the assets, and people begin to lose confidennce in what was a fairly ropey conept to begin with, and the w/banking system begins to hover on the verge of collapse. What is money? It’s the tool banks use to make even more money. when things were going well and everyone believed them, they were making more money than they knew what to do with. Literally. So they lowered the bar with regard to risk and began lending more to people who were less likely to be able to pay it off (sub-prime and 5x annual income mortgages), which is all ok so long as the assets covering the debt do actually cover the debt. But in a volatile propery market, that isn’t guaranteed, and we pretty much all know what happened next. Especially once all the sub-primes started defaulting and prices at that end of the market were less robust.
So it’s not just a systemic failure, there was a large degree of incompetence and greed fuelling the excessive lending. tyhere’s also the fact that where there limits to the extent to which a bank can use the bank multiplier, many banks just packaged their debts and sold it on to someone who, not being a bank could side step the banking regulations. This allowd the banks to reset their current lending risk to 0 and start lending again, arguably afailure in the regulkatory system, but also arguably cause by short-termism and greed by the bosses of the financial institiution.

Amd I cannot understand why anyone working in a bank deserves a bomus. Bonses are for when times are good. They’re not. I cannot imagine what it must be like for someone with a family to support who has lost their job yet sees the banks, who were not only responsible for this mess, but were bailed out to the tune of £17k by every single person in Britain, paying bonuses to their staff. I’ve been paying my mortgage, just like I’m suppossed to, do i get a bonus? 10% is a month and a bit’s mortgage – if they’ve got money to blow, why not blow it on the people that are suffering because of their institiutional greed and incompetence?

<< and breath >>

bigslimmer, Im only going to pick you up on a couple of bits of your epic post…

you use the kind of language id more expect of those armchair trots Juan and fred: “cause by short-termism and greed by the bosses of the financial institiution”. In more temperate language that is very simply “enhancing shareholder wealth”. That is the sole objective of these organisations. While the bonus structure was INTENDED to harmonise the shorter term objectives the individual and the shareholder, it has become clearer now that that didnt protect the longer term position of the bank. That means the mechanism has failed. Not by negligence or deliberate malfeasance, but because it WASNT FORESEEN that the shorter and longer term objectives of the bank could not be served effectively by the same tools.

secondly, Bonuses are for when times are good.. No they are not. They are nothing to do with cyclical markets. They are a mechanism for paying staff that reserves a portino of thie income that can be directly attributed to their ability to achieve personal targets. Bonuses are just as viable as an incentive in a recession as they are in a boom.

Bonuses are just as viable as an incentive in a recession as they are in a boom.
Given the lack of jobs in the finiance industry at the moment, I’d have thought keeping your job would work as a useful incentive to perform well.
Anyway aren’t there two seperate questions here.
Is it ok to pay people bonuses?
Is it ok to use public money to pay bonuses to failed institutions?

Ian – if you stop thinking of bonuses as being gifts and think of them as being that part of the pay deal that is measured on an individual’s performance then you can answer both of those questions quite easily.

as The Trader says above: Banks don’t give away money to their staff for the fun of it, they maximize their profits

Bonuses are for meeting/exceeding targets, not turning up. And since the taxpayers interest is in the financial success of the banks then there should be no disincentive to pay bonuses to those staff that improved the bank’s sharehgolders wealth.

oh, and “Given the lack of jobs in the finiance industry at the moment, I’d have thought keeping your job would work as a useful “

ANyone working in banking makes their own calculation of how much they want to work for, including whether or not they’re going to get a bonus and if so, how much. If the total amount of income doesnt look like enough to compensate for the long hours and shit work, then they wont take it (or indeed will resign/take redundancy) just like anyone in any other job anywhere else.

I know of a number of people who’ve taken the opportunity to leave the industry and do something different/easier/less demanding and of course with the expected fall in income.

pay bonuses to those staff that improved the bank’s sharehgolders wealth.

But they haven’t done that, have they – that’s the whole point. They may have done in the past.

But they haven’t done that

proof?

Peronally I have no idea how well or not banks have done this year. Remeber the headlines are often about share value, not profitability. Bonuses will be paid on the latter usually not the former.

How can a bank that has required billions of pounds of government money to prop it up be considered profitable/successful?

Stoner
As somebody with a background in Economics (but no experience in banking) your last post doesnt seem to make sense but in essence you seem to be saying that banks create wealth by taking (calculated) risks on external economic events and when these risks dont pay off then then the loss is outside of their control. When profits are made on these gambles those events are also outside of their control (one would hope!)
Thats all well and good as long as we let banks fail when they make bad decisions (gambles)
In essence however the impact on the economy is so great that this can not be allowed to happen and they need to be supported by other means, thats were we taxpayers come in.
As a simple taxpayer I find it repugnant that bonuses in this climate are payed, and lets seperate this from counter staff and admin staff etc because this is not what we are talking about. We are talking about significant amounts of money being paid to people in positions able to influence commercial decisions. I dont think you will find much support on this.
I am also not convinced by the quote you post about the banker complaining that he has no pension, sickness pay within his bonus!

So share value and profitability aren’t linked – care to explain the finer points of that one please.

Royal Bank of Scotland shares have plunged 67% after the bank said it was heading for a record loss.
The bank said it expects to report a deficit before write-downs of between £7bn and £8bn for 2008.
It will also write down assets, largely related to its takeover of ABN Amro in 2007, of up to £20bn in 2007.

http://news.bbc.co.uk/1/hi/business/7836882.stm

surfer – I dont disagree with most of what you said, and it is what I said earlier – that losses are often years in developing, gains are often visible immediately. That’s a result of accounting legislation and the way that long creidt positions are permitted to develop under the capital adequacy legislation – none of which is withn the control of the inidivdual banker. This is also why the current bonus system is not compatible the longer term objectives of the company or the economy. It doesnt mean that this years bonuses shouldnt be paid – we have no information on hwat basis they are being paid or for what kind of performance.

Everyones gripe seems to be just that “bonuses are being paid”. that is childish and short-sighted. as Ive said, bonuses themselves are not evil things. If you want to slag them off, find out on what basis they were paid first, because in themselves they are not bad things. Maybe they should rename them then?

And I whole heartedly agree that banks should have been permitted to fail. Ive never supported the bail out mechanism and have never said anything but this.

proof?

Peronally I have no idea how well or not banks have done this year. Remeber the headlines are often about share value, not profitability. Bonuses will be paid on the latter usually not the former.

Seeing as you seem to be ignoring it:

Royal Bank of Scotland shares have plunged 67% after the bank said it was heading for a record loss.
The bank said it expects to report a deficit before write-downs of between £7bn and £8bn for 2008.
It will also write down assets, largely related to its takeover of ABN Amro in 2007, of up to £20bn in 2007.

smee – share value is the that value that the market gives to all of the risk discounted future net income streams of the company.

profitability is a single period balance of revenue and costs.

IMO to make bonuses work better in line with longer term health of the company they should be linked to the share price and held embargoed for longer. Again Ive never said I apporve of profitability led bonuses, only that bonuses of the right structure can work well.

I have seen many contrived structures to enhance the one-off profitability of a business and I cant stand to see it happen. But as long as the accounting/capital adequacy structures are in place to encourage it, no single banker/bank is going to do things differently if it makes them uncompetitive in a market place where all the other bankers/banks are carrying on as normal. Herd mentality.

Bonuses are just as viable as an incentive in a recession as they are in a boom.

Obviously, which is reflected in the healthy state of the banking system just now. Just think – the taxpayer has not only paid to keep these people in jobs (many other business would have just collapsed), but we’re paying them bonuses as well. Rewarding failure – the way forward.