Bonuses for Bankers

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.

Hello – Stoner, are you there?! I like the way you are just completely ignoring me now when I provided the proof you asked for of you being wrong.

grumm, if you read this article you will see the truth behind the daft headlines.
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article5663873.ece

I see the only bit that is contentious is this:

Without big bonuses, they could defect

and I can see why that can be considered stupid, but succinctly:

RBS — and taxpayers — have no interest in the strongly performing parts of its investment banking business being shredded,”

as is clear in the article, the bonuse are not being paid to everyone, only those departments who have been profitable and done well will receive a bonus. The amount is going to be very small this year too by the look of it. “Banking” is a huge business with a myriad of mini-businesses. its rare that all of them tank or boom at the same time, even in a boom era.

*EDIT not ignoring you grumm, researching where I dont have the informatino to hand as I said earlier, reading the evidence, considering a reply and posting. Must be something you’re not familiar with.

slimmer, “but we’re paying them bonuses as well. Rewarding failure – the way forward. “

read my bit up there about who it’s reported are elligible for bonuses rather then repeat the dail express line. Bonuses are paid to individuals, not banks.

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?

I don’t think anyone has a problem with executives in successful profitable banks getting bonuses, ditto teams and individuals who are making money for the business. Equally I have no problem with staff at Northern Rock getting bonuses for meeting targets on repaying the bank’s debts.

What most people here are objecting to is senior executives of banks that have clearly failed (whether you measure that in terms of profitability or share price) apparently continuing reward themselves for failure. If they can justify their bonuses that would be one thing – but I very much doubt they can. They pocketted the rewards in the good times now its time for them to tighten their belts in the bad times: after all what’s the point of an incentive system that doesn’t penalise failure, that operates on the basis of ‘heads I win tails I don’t lose’?

I appreciate your point that the problems have built up over a period of years so yes there’s an element of rough justice, but that’s life.

andy – Im glad we agree 🙂

I too dont think senior board execs (i.e. those that oversee the entire business rather than those that manage well performing/badly performing division) should be getting bonuses, but Im trying to find evidence of them getting them…

I can see your point to an extent but hasn’t part of the problem been the culture where massive bonuses have encouraged excessive risk-taking. So wouldn’t curbing bonuses, even for successful bankers, be a sensible move in the current climate?

Equally I have no problem with staff at Northern Rock getting bonuses for meeting targets on repaying the bank’s debts

It may be a bit anecdotal but i understand they have met targets by aggressively repossessing properties. If this is the case I would object strongly.

What Stoner said.

It’s time to ditch capitalism me think.

The alternative being? Communism, after all, didn’t exactly work.

bonuses are being curbed Im sure.

I bet that nearly every bonus calculation formula is being reviewed and redesigned both in the ability to pay big sums as well as linking it to longer term performance.

have encouraged excessive risk-taking

more daily express headlines there.
“Excessive risk” (whatever that may be) that is profitable would have been rewarded because of the short term bonus structures. Losses from “excessive risk” usually take much longer to appear and so can’t impact bonuses in a the period that the decision to make the call was made. Ive said earlier that this disconnect is a big problem and is the one I expect will be addressed as bonus structures are redesigned over the coming years (its not the kind of thing that will happen overnight as its still not in an individual bank’s interest to make itself uncompetitive in the short term)

surfer – quite right too.
The way the treasury tied the hands of the banks they took stakes in compounded the problems to some degree. By forcing the repayment of taxpayer loans above all else, it mean that Northern ROck were disincentivised to lend to the market – one of the big requests being made of them!

also, the treasury demanded their capital be taken in the form of preference shares that commanded a massive (10%) coupon while cutting base rates and demanding that loans be made out cheaply – that’s completely incompatible – you cant run a business profitable when your being told to do unprofitable actions and then pay away a disproportionate coupon on the capital employed. Finally the treasury saw sense last month and converted their pref shares into ordinaries to give the bansk a chance to loan at market rates again.

I have no problem with staff at Northern Rock getting bonuses for meeting targets on repaying the bank’s debts.

I’ve been repaying my debt to the bank – where’s my bonus? If they hadn’t need bailed out by the taxpayer, or if the debts had been cleared, bonus time, hurray, but paying bonuses whilst still in debt is wrong

stoner
the banks as institutions FAILED. If there are parts of the operations were successful, then those parts should be funding the loss making parts. If anyone wants to leave because they didn’t get a bonus, bye.
One of the biggest issues around the whoe collapse is confidence in the banking system, and the banks need to be seen to be sorting themselves out. this is just not happening. the general perception is that the fekked up, got bailed out and now reckon they can go ahead like nothing happened. that may or not be the truth of it, but is certainly a widely held perception. IME perception can be more important than fact (being hung because the jury didn’t believe you, not because you weren’t telling the truth), particulalrly in a confidence-driven industry like banking – remember that many are still smarting from the Great Endowment Fiasco of not seo very long ago

but is certainly a widely held perception.

lack of understanding is no reason to throw the baby out with the bath water.

BTW – slimmer, paying a bonus for “meeting targets on repaying back the taxpayer debt” isnt a problem as it encourage the bank to act in a way that enhanced taxpayers value. If the target was too low, then it is a problem. Do you know whether it was too low or not?

but is certainly a widely held perception.

lack of understanding is no reason to throw th ebaby out with the bath water

Unfortunately perception is reality! The banks need to understand this and appear to do the right thing. The fact (?) that the complexities and time lags inherent in the bonus structures are beyond the abilities of some people to understand (allegedly!) wont help when political pressure is brought to bear on banks through pressure from taxpayers.

You don’t need a nobel prize in economics to recognise the smell of bulls**t.

come on comrade, you can do better than that…

As far as I can see it would be pretty easy to say to an employee: The business has lost money, your bonus is discretionary, tough luck James, you may have increased our exposure to AAA rated securitised debt by 10 fold, but it turns out it was cak all along.

djglover – that certainly should apply to the senior oversight managers.

No bank would apply that to an individual though as no individual would accept cross funding someone elses failures and no bank would wont to isolate itself in the job market. The only solution would be to design “global” bonus structures which incorporated a company performance component, but sure as hell there’d be work arounds developed within days.

as the Trader says

Regulating wages in a market economy is nigh impossible

if people hadn’t perceived that Northern Rock was in trouble, they wouldn’t have queued to ask for their money back.
if people hadn’t perceived that the god times would last forever they wouldn’t have taken out 5x annual income loans, and property proces wouldn’t have soared
if people didn’t perceive the daily mail had something to say, it wouldn’t sell any papers

it’s all about perception. that’s why you get dressed up for interviews

come on comrade, you can do better than that…

Why should I, comrade? I have zero interest in the arcane complexities of high finance. But I’m **** tired of bankers bleating on about the long hours and intense pressure. Perhaps they’d care to join us down ‘ere in emergency admissions, for the princely sum of about £12 an hour. Where the sharp drop on the screen is actually somebody bleeding to death, not just the share price collapsing.

djglover – that certainly should apply to the senior oversight managers.

No bank would apply that to an individual though as no individual would accept cross funding someone elses failures and no bank would wont to isolate itself in the job market. The only solution would be to design “global” bonus structures which incorporated a company performance component, but sure as hell there’d be work arounds developed within days.

I think it should apply further down, it would in our business, I could loose a hefty amount on overall business performance, but then I don’t work in a bank and so I don’t know what these bonus structures look like, but surley the most talented could move elsewhere in the industry, not all banks have been saved. I can understand them wanting to retain their most talented people too, but I bet most of these people have just been riding a gravy train for the past 8 years.

Crikey, working in the banking trade must be much harder than I first thought. Clearly normal metrics that apply to other businesses can’t be applied to major commerce. Every other business on the planet can be explained in very simple terms, usually something along the lines of ‘make a lot of money, get a nice big bonus’. Banking is obviously way more complicated than that and therefore can’t be explained to mere men in the street like us.

make imaginary money, loose imaginary money, get big bonus 🙂

yes they’re being rewarded for being crap but if all the bankers in all the world paid back their bonuses it wouldn’t even come to 1% of the total debt

yes they’re being rewarded for being crap but if all the bankers in all the world paid back their bonuses it wouldn’t even come to 1% of the total debt

That argument could be used for a lot of things. Its not simply about the amount of money (although to the man in the street that is also hugely important) its about the principle.

samuri, therealhoops, did you deliberately not read any of the previous posts?

samuri – I even went to the effort of giving you a link to a well written piece explaining just how such things interact. Id normally credit you with making an effort to read it? Or, like so many others in here, is the need for an villain to castigate in these troubled times too attractive?

Tbe honest, a chemical engineer could come in here and be asked to explain the interactions of the european drug safety agencies, COSH, restricted global tariffs, african drug support programmes and all the other complicated and nebullous influences on the Pharmaceutical industry and justify why x happens or why y gets paid so much. Afterall, its just like “Every other business on the planet can be explained in very simple terms, usually something along the lines of ‘make a lot of money, get a nice big bonus’. Pharmaceuticals is obviously way more complicated than that and therefore can’t be explained to mere men in the street like us. ”

Mine was a cock response stoner, probably based on my own experiences with the banking sector (admittedly, mostly at the retail level). They’re similar to my experiences to the medical profession where I am treated like an idiot who couldn’t possibly understand the complexities surrounding something as difficult to understand as banking/humans…… Unfortunately I have to deal with both on a regular basis. At least members of the finance sector don’t escalate themselves to god by removing any pronouns before their title.

…..But I did read the article, it clearly states that the writer feels the banking sector as a whole is at fault for not managing themselves properly. Whilst I actually don’t believe it’s hugely complicated to create a sensible risk management process, I don’t have time to do it myself for each foray into finance I go through and expect the experts to do a good job of it for me.

I understand the points you are making but it is the senior staff who are recieving their bonuses (presumably out of the money that has been paid by the taxman), and if they’re not responsible for the state of the banking structure and the house of cards it became, then who is?

it is the senior staff who are recieving their bonuses

and as Ive said, if the senior staff (and by that we must really mean those high enough up to influence policy and practice) ARE receiving bonuses then I disaprove, but looking at the Times article on the RBS bonuses they certainly dont mention it…but explicitly mention succesful teams and division, may be because thats the truth of it rather than the scaremongering headline stuff about “Bonuses for failure”.

The thing is in most professions, even if you personally performed well, if the company was failing, you wouldn’t get a bonus would you?

PS WRT:

and if they’re not responsible for the state of the banking structure and the house of cards it became, then who is?

there will be a lot handwringing to come. Personally I believe the vast majority of people (95%+) who work in finance are innocent of claim that they created this house of cards. I dont doubt that higher up the tree, most effort was made to legally capitalise on every nook, cranny, opening and allowance that the global finance environment made available through soggy Accounting Standards, regulatory regimes and capital adequacy rules. Those the write those rules, set those boundaries and monitor their effect are doubly responsible IMO.

And credit rating agencies. They’re first up against the wall in my world.

grumm – that happened at a company I used to work for. I was mighty peeved that my teams very good work (we were the most profitable team that year) had our bonuses slashed because a bunch of numpties who couldnt use a calculator very well screwed up.

So I left.

“The thing is in most professions, even if you personally performed well, if the company was failing, you wouldn’t get a bonus would you? “

Yes you would, targets / bonuses are usually set in contract and are often related to the individuals performance. In this case the company performance is irrelevant.

Of course if you have a target / bonus related to company performance you are right.

Those the write those rules, set those boundaries and monitor their effect are doubly responsible IMO.

I take as dim a view of policy makers as anybody, but the financial industry has never welcomed regulation – and indeed were more than happy for said regulators to carry on performing like a chocolate teapot. None of ’em were forced into cranky financial instruments, just as nobody was forced to partake in a ridiculous short-term bonus culture.

you’re hardly going to get turkeys voting for christmas are you?

well, maybe hardworking, cuddly, socialist, nursing turkeys might…. 🙂

So, what is it you do in the financial sector Stoner? Senior policy maker? 😉

I wish.

Right you lot, these are the new rules…! 🙂

I help companies/organisations (that could be an occupier, a developer, investor, government body etc) work out what the financial implications are of their property options. My job is to f*** about with all the data from loads of different places, put it into a sensible order and hand it back again. What I dont do is provide the data. But I do see people making crap decisions based on poor understanding of the data or by making me work with stupid assumptions.

The only solution would be to design “global” bonus structures which incorporated a company performance component, but sure as hell there’d be work arounds developed within days.

But if bankers in general (at least the ones high up enough to get serious bonuses) have screwed everything up by ‘working around’ bonus structures and gaming the system, then surely that implies that their previous bonuses are likely to have been undeserved. Obviously you can’t take back bonuses now, but by not paying them, at least for one year, they’d at least be making that point.

Joe

Ha – nothing cuddly about me, stoner… 😈

Or even especially socialist – just what works, whatever the dogma.

Obviously you can’t take back bonuses now, but by not paying them, at least for one year, they’d at least be making that point

oooo, spiteful! 🙂

differnt bankers, different bonuses. “Bankers” isnt just a couple of dozen people in pinstripe suits, its hundreds of thousands of people in the finance sector? where do you draw the line? which companies? You could say “any bank that benefits from govenerment capital may not pay bonuses this year”…and then watch every single profitable employee go straight to the oppo which of course would undermine the value of the taxpayer stakes in those business.

Cut of your nose, and spite your face.

You could say “any bank that benefits from govenerment capital may not pay bonuses this year”…and then watch every single profitable employee go straight to the oppo

Would the oppo be able to absorb these tens of thousands of “profitable employees” then? If they could, would they want to? Bearing in mind these employees would be coming from banks which had required government help, whilst the oppo are already staffed with employees that didn’t?

I think it would be interesting to see just how many of these people would actually take a chance on jumping ship in todays financial marketplace. Particularly those with families to support.