Eton? ETON? Oh, please…..! 😉

I find that a bonus can be a very good incentive, both for those on a lower and higher basic salary. It is, I would agree, entirely dependent on performance (good, obviously!) and doesn’t work in every work environment. This latter is mainly as a result of the performance element. I don’t think it really works for everything, but if there’s an element of revenue generation involved in the role, then bonuses are a very good way to add additional motivation above and beyond proper performance managment and other, more important job satisfaction methods (Mainly around making it a rewarding, enjoyable place to work, something which can come in many shapes and sizes and has nothing to do with money)

Oh, and once again, ETON? 😉

TandemJeremy – Member
Apparently the superrich need motivating by throwning money at them. strangely this does not appear to be true for lessor mortals

IME my friends* who are public sector workers fear bonuses, not because they fear bonuses themselves but because it requires acknowledgement of some formal degree of performance measurement and management.

God forbid that as a nation we should look to assess the performance of our teachers etc relative to each other and pay the better ones more money either directly through consolidated pay or through bonuses.

* Albeit I do not have many friends who work in the public sector, as all my peers seem to be rich, god knows where I went wrong 😐

Out of interest who are “the likes of Flashy”?

Blimey what a lot of baggage surrounding a very simple concept.

Total costs = fixed costs plus variable costs. Common sense:

Minimise fixed costs – tick

Make variable costs dependent on performance – tick

Also perfect economic sense. But, it became abused and the link between VC and performance often broken and/or wrong measures used to assess performance (certainly in RBS’ case)

But as always you get the bullsh!t response. So after the crisis, regulators of financial services play to the media circus with the line – “it was the bonuses wat did ’em!.” So encourage banks to 3x basic salaries to avoid paying bonuses. What kind of muppet forces a system where you triple your fixed costs and reduce your variable costs? Politicians playing to the baaying press.

So banks need to be profitable to function again. They can’t use leverage (correct), there is FA yield curve to speak off, so they cant make a margin and yields are absurdly low across most asset classes. The solution, screw their fixed cost base. You couldn’t make it up. Good job QE doesn’t require banks to be able to lend..oh, sorry it does?

Make variable costs dependent on performance – tick

Teamhurtmore – you clearly know what you’re talking about and while I am largely on the side of rewarding performance and paying people these very high salaries, the part that most people will quibble about is the ‘tick’ next to performance.

The only other part I would quibble with myself, is that you only minimise risk by shifting fixed cost to variable if you really do make the bonus ‘variable’. If you end up paying it year in year out, regardless of performance, then it’s not really variable cost.

What needs to be differentiated is individual versus corporate performance. That’s the part that the general public and the media have a real problem with.

When you do a job where your idea of basic customer service, the minumum service that the customer is entitled to expect is in direct conflict with a management dedicated to driving down costs, then bonuses can be used as a threat.

You can either treat your customers in a decent and reasonable manner or you can earn your bonus.

ooh! This reminds me!
I was pretty suprised to hear Scroobius Pip on Poetry Please last Sunday

Mr Otis regrets (scroll to 15 mins in)

Well worth listening to with respect to this thread.

Most ‘workers’ bonuses are usually based on a combination of their work and the financial ‘numbers’ of the business.

But I have worked for organisations where its based on other variables – the metal price when at an Aluminium producer – so irrelevent of my input, my bonus was paid. One year at 5%, the next 35% 🙂

Others I’ve worked at paid out only in their piece of the business made a profit, consquently its very easy within a corporate to ‘decide’ whether a subsidary makes a profit or not…

Bonuses are often related to the success the company not the individual. And just forgot the outliers that get the media attention for a moment. They are an extreme example. A company will often pay a bonus related to the success of the company. Seems fair enough to me. If the company is doing well then they give a bit more to the staff as a reward for job well done. If not then the bonus is reigned back. That’s a bit difficult to with a salary so a bonus system gives more flexibility.

You accept the job based on salary and anything else is a ‘bonus’. Often a manager of a team will have a little leeway to give a slightly higher reward to the those in the team that deserve it but will the slackers will get a little less. Personal success is secondary to the company. That’s my own experience but I imagine sales jobs have the balance the other way.

So you agree Flashy that bouses are completely innapropriate in a situation where the basic, pre bonus wage isn’t liveable?

And I’ll agree to rename it the ‘Soggy biscuit defence’. 😀

oldgit – think of it a bit like commission (a concept most people get) the better you are at your job the more you earn – and in some cases that might involve not just you performing well but you getting everyone else you work with performing well. If you are really crap you might well get fired, but if you are outstanding, or have a particularly good year you would get more than average.

However there are some advantages, (1) a single lump sum rather than 12 equal payments may get better NI treatment; (2) the employer (in theory) pays out in proportion to earnings; (3) psychologically giving you a lump sum is more “noticeable” than the same amount spread over 12 months (for this reason when I have paid staff a discretionary bonus (which has never been more than £1500) I have always done it in cash and handed it to them rather than simply a bigger number in their pay packet; (4) bonuses are often treated separately from payrises – thus letting you motivate staff without necessarily increasing next years pay; (5) bonuses are often paid at a fixed time of year which can be a good way of encouraging staff to stay until the “cut off date” – of course this is not always a good idea!; (6) staff who are off sick, on maternity leave etc may not be earning bonus.

Yes onuses are subject to tax as per normal pay. If the bonus is paid in shares (which the government were keen to encourage banks to do – so that the incentive is long term), then the tax liability won’t exist until the shares are actually received you can assume that senior officials in a major bank have very tax efficient schemes for limiting their liability. If the shares make a profit the profit is also subject to capital gains tax. You can safely assume that the director of any FTSE 100 company has access to good advice on how to minimise that liability too.

The one thing that has not been mentioned is the compromise of the strategic aspects of the business for the tactical ie this year, bonus paying bits.

Seems quite evident in our company. After all most of the managers are only in that role/position for 1-2 years max, so are not really accountable for their decisions when it really starts to hurt a bit later on.

Geetee – I agree. People have a habit of screwing up good ideas ( :wink:). One obvious flaw in how the bonus system developed in banking is the fact that it lead to an assymetric approach to risk taking. Plus performance was often based on revenue rather than profits or even profitability. Plus de-linking the company from the individual is not easy as others have said. And above all, we often mistake luck for skill. Too many people got payed for being lucky.

I think John Lewis has the approach of paying everyone the same % of their basic as a bonus (pls correct me if I am wrong). Investment banks in contrast kept basic salaries down (?) and in very narrow range to focus on performance. Good idea, bad result when it led to excessive risk taking. If I understand JL correctly, that is a bonus system that also has a lot of merit (assuming the basics are fair).

No. I don’t agree, as long as the bonus in question is achievable, and a relevant reward for the work done. I know many folk working in London who regularly achieve a bonus that makes their pitiful basic wage very much liveable (spl?). For example, I know a few folks in sales roles on £10k basics in London. That’s in no way a good wage. However, one chap I know earned well in excess of £100k from that basic plus bonus last year.

How about an alternative scheme for public sector employees, to remove the need for bonuses?

We could pay a higher basic annual salary – and impose deductions for poor performance 😀

Bradford factor? 10% deduction per hundred points
Repeated lateness? 1% salary deduction per occasion

Practical solutions for practical problems 8)

CFH – the example you provided above sounds much more like commission than a bonus to me. There may have been a bonus element to it, but I find it hard to believe that a big chunk of that earned above the basic £10k was not earned as commission on sales.

Commissions and Bonuses are not the same IMO. There seems to be a few posters using the two interchangeably.

I would agree that you can have bonuses that are tied to personal targets rather than company targets, and you can devise schemes that blur the edges eg. tiered commissions rates above certain thresholds.

On balance though I don’t feel that using Sales (Reveneue Generation) roles as you describe them are very helpful in this context.

apparently tube drivers don’t need a bonus.

rather amusing to see the same folk on this thread saying how bonuses are good appear on the tube drivers thread saying how tube drivers don’t need a bonus

Why do they need one, TJ? What will they have done to earn it? Improved their performance, perhaps? Made the Tube more effective or profitable, maybe?

Nope. Sat on their arses as per.

We could pay a higher basic annual salary – and impose deductions for poor performance

Pay them for doing something rather than just being there? Radical, I know.
And yes CFH, that does sound like a commission based salary rather than a bonus.
I certainly wouldn’t like to be in the human resource team that sets bonuses (boni?).

Commissions and Bonuses are not the same IMO. There seems to be a few posters using the two interchangeably.

Not so sure. If, as a bonus should be, it’s performance related, they’re just a different way of doing the same.

I would imagine that a bonus will be triggered after hitting a certain level of sales/profit. Commission is paid on everything you sell.
think of football and the difference between a goal scoring bonus and a win bonus. 😉

Is (or perhaps, was) the problem in financial circles not the fact that the bonus is pretty much a given regardless of personal performance?

CFH – potential for extra shifts, no holidays during that time, higher workloads and more pressure?

Or – Like most big earners bonuses they simply have to power to grab one 🙂

Its just so funny watching you defend bonuses in one thread and condemn in another – not that you are the only one.

I think I had the option of bypassing tax on my bonus (a few hundred quid 🙁 ) in my last job by putting it straight into my pension? Might be wrong.

OP – The bonus was there as a personal and group incentive to do well. The overall bonus pool size was determined by a number of factors from overall company profits, to how well we as a company managed to bill clients within the monthly timescale we were supposed to, and so on. Then there was a personal performance input based on your yearly appraisal, so the two combined determined your own bonus. The few partners creamed off 50% whilst the rest of it was shared by the other 300 of us mortals based on personal performance and rank.

I can get both a bonus and commission, both are paid depending on performance and help make up for a low(ish) basic wage. I get commission for each sale u make and if I hit my end of year target I get a bonus, if the company does well I get a little more.

I think this is an excellent way of incentivising a work force. If you do well you make a few extra £££, if not you don’t you don’t. I don’t see how this is in anyway a bad thing unless you’re performance is not as it should be anyway.

The concept of a bonus in banking, and particularly investment banking, derives from their history as partnerships where the partners used to share their profits for the year among themselves in addition to earning interest on capital on their partnership share. As the partnerships were incorporated, this was replaced by a low salary and a profit share or bonus which was assumed to provide most of the income and this has become the most common way that bankers in wholesale and investment banking get paid. The biggest bonuses tend to go to what banks call originators (and everyone else calls salesmen).

Where banking differs from many other industries is the sheer number of potential employers that exist – there are over 300 banks registered to do business in London, this creates a level of competition for talent that has driven up wages in the same way that footballers wages have been driven up. And likewise only a few can achieve success and hence there are plenty of bankers being paid without producing income for their bank, in the same way there are highly paid footballers failing to win trophies.

The one way bet theory of bonuses is massively over emphasised, in practice bankers operate within a fairly regimented risk framework so if the framework allows to do a deal they will do it, the big losses arise when the framework has underpriced a risk (such as liquidity risk in the credit crunch).

I don’t see how this is in anyway a bad thing unless you’re performance is not as it should be anyway.

Because not everyone is paid according to performance and as a result they get very, very jealous. When they realise it’s connected to performance they panic and start screaming for either overtime or that they are being abused. It’s a funny old world.

I have a bonus element of my salary and it is highly motivating.

This thread is very de-motivating so i am off to do some more work.

rather amusing to see the same folk on this thread saying how bonuses are good appear on the tube drivers thread saying how tube drivers don’t need a bonus

Can I be the first to point out that I don’t agree with tube drivers getting a bonus for just doing their job any more than I agree with bankers getting a bonus for just doing their job. The obvious difference though is that the system of supply and demand for tube drivers is so broken that it’s pretty hard to argue that you’ll lose the best talent if you don’t pay them more – I mean what exactly is a tube driver going to leave to do?

I put this idea in the suggestion scheme at work “Take all the money it costs administering the performance rewards scheme, share it out among everyone, instead of the just 10% of people it impacts, and then we can all use that time to do something productive”

Funnily enough I didn’t get suggestion of the month.

I mean what exactly is a tube driver going to leave to do?

Yes I agree. It’s not as if a highly skilled individual, responsible for the lives of thousands of people per day could possible find another productive job is it? 🙄

CaptainFlashheart – Member

Nope. Sat on their arses as per.

Listen mate, you’re the only one that I know on here who’s embarrassed to say what they do for a living, that’s if you do anything at all.

So either stop slagging people off or tell us what you do, other than sit on your fat arse all day, so that you can be judged too.

Seems only fair – no ?

Bonuses are not taxed like normal salary if you are a director, neither are dividends. Although dunno how that applies to PLCs.

Bonuses are not taxed like normal salary

They are

how easy would it be to replace all the tube drivers? I mean why dose TFL not sack them all and bring in new talent?

Bonuses are not taxed like normal salary

They are

If I take my annual bonus as shares, I can claim it tax & N.I free if held in trust for 5 years. I’ve no idea if this is the same for the astromical bonuses that FTSE100 directors get.

how easy would it be to replace all the tube drivers? I mean why dose TFL not sack them all and bring in new talent?

Are you simply talking about the cost of rehiring or including the money being lost due to strikes as the unions flex their muscles to protect the poor workers against the evil management? 🙄

If I take my annual bonus as shares, I can claim it tax & N.I free if held in trust for 5 years

That is a Share Incentive Plan, which is a different matter.

“Oligarchical collectivism 2012 style”

Yes I agree. It’s not as if a highly skilled individual, responsible for the lives of thousands of people per day could possible find another productive job is it?

Lawyer? Stockbroker? Doctor? Or are you talking about jobs with significantly worse pay than their current one (eg teacher, nurse, firefighter)? Just how many tube drivers every year quit their job in order to get one of these alternative jobs they could just walk straight into?

If they didn’t get bonuses, they’d just get a bigger salary. We have to UK Code on Corporate Governance to thank for this.