Monday 16 February 2009

Check out time for bonus boys

In an episode of the cult US TV series West Wing, set in the White House, presidential chief of staff Leo McGarry asks one of his private sector friends what he earns. When the answer comes back "$1m", Leo says: "but with bonuses?", the answer then is "$12m".
When did this happen that bonuses ended up being 11 times their salary?
In most people's heads a bonus was maybe £50 at Christmas for doing a good job that year. But sometime in the last decade, or two, bonuses in the financial sector turned into a value that was not only way more than the average person's salary, but way more than the salary of the person who was receiving the bonus.
That is no longer a bonus, but a big fat payment.
Nearly two years ago the Fabians carried some public perception research with YouGov about salaries and what the public thought was reasonable and fair.
This was a long time before any banks were looking wobbly, and in need of government bail out, and job security and prospects were looking strong.
Even then, in what good times, the public felt some people were earning too much. That the earnings of Premier League footballers and company managing directors were out of touch. They felt that these people should earn a reasonable amount of money but it should not be out of touch with reality, or in other words what others were earning.
At the recent Fabian New Year Conference, Kevin Maguire argued for top salaries in a company being no more than ten times what the lowest paid worker in the company was earning. Is that so unreasonable?
On a day when the government is finally talking about banning executive bank bonuses, the majority of the public will be asking: "Why didn't you say this earlier?". Yes, this is the right thing to do, but why have they been hanging about, letting banks that were being dug out of financial holes with public cash, use that money to pay senior executives bonuses of hundreds of thousands of pounds.
Yes, there is a question of morality here. Why would the head of any bank think that using money to pay a senior executive at these times of financial trouble moral fair? More importantly, why would you loan money to someone or something that is using it wastefully?
Let's look at the model of a parent and a small child. The small child has lost its money and is asking for a loan, and the parent considers that there is a fair case for the child to be helped out of a hole. But if the child just went and spent that money on a huge sack of sweets, would the parent think it was a fair use of their loaned money. If you were the person lending the money wouldn't you ask for conditions on how that money would be spent?
More recent polling for the Fabian Society by YouGov found 80% felt bonuses reward long-term performance rather than short-term success, while 57% felt that staff should have to pay back their bonuses if their company failed within two years.
No one would argue that giving staff a bottle of wine at Christmas to reward great performance is unreasonable. It isn't.
But it is time to reconsider what the word bonus actually means. When it is more than your salary it is no longer a bonus, but more of a major pay rise.

1 comment:

Calix said...

I agree - things have gone wrong somewhere if the bonus dwarfs the salary.

In Bulgaria the norm is to get a thirteenth monthly salary at the end of the year if you have performed well. That sounds a lot better and more straight-forward to me.

The problem with totally doing away with bonuses at banks is that many of the counter staff are on less than £20,000 so need a bonus, but a thirteenth salary would solve this problem because everyone would receive a proportionate boost according to their actual responsibility (if they have performed in the first place).

If the banks are being bailed out I don't see why the government couldn't insist on something like this.