The Dysfunctional Bonus Culture

I recently saw a news article on the Web – “Carry on Sir Humphrey: Half of civil servants enjoy bonuses worth £140 million”. http://www.telegraph.co.uk/news/politics/10666417/Carry-on-Sir-Humphrey-Half-of-civil-servants-enjoy-bonuses-worth-140-million.html

It was a surprise to realise that the bonus culture is not restricted to only the banking sector, but the same problems seem to apply – bonuses are still being paid in spite of the fact that performance is visibly dropping off.

In the banking sector itself, it seems to be “business as usual”!
* Bonus culture: Banks are increasing the amount of bonuses paid to bankers despite widespread losses http://www.thisismoney.co.uk/money/markets/article-2570585/Bonus-culture-Banks-increasing-bonuses-paid-bankers-despite-widespread-losses.html
* Greedy bankers STILL don’t get it . . . http://www.dailymail.co.uk/news/article-2515787/Greedy-bankers-STILL-dont-Bonus-culture-returns-vengeance-years-crash-2-700-British-bankers-pocket-average-1-6million.html
* Fat cats getting fatter? Bankers’ bonus culture lives on as millionaires’ club tops 2,700 http://www.independent.co.uk/news/business/news/fat-cats-getting-fatter-bankers-bonus-culture-lives-on-as-millionaires-club-tops-2700-8972757.html
* Financial sector’s bonus culture is an insult to the rest of society http://www.heraldscotland.com/comment/letters/financial-sectors-bonus-culture-is-an-insult-to-the-rest-of-society.23570166

And from “Blame it on the bonus culture?” at http://ufm2009.over-blog.com/article-blame-it-on-the-bonus-culture–40087838.html we have:-
“The current debate concerns the potential de-linkage between bonuses and performance. New-York Attorney General Andrew Cuomo investigated into Wall Street big banks bonuses and his report suggests that there is a “disconnect between compensation and bank performance that resulted in a heads I win, tails you lose bonus system”. He observed,
“When the banks did well, their employees were paid well.
When the banks did poorly, their employees were paid well.
And when the banks did very poorly, they were bailed out by taxpayers and their employees were still paid well.
Bonuses and overall compensation did not vary significantly as profits diminished.”
His main conclusion is that the bonus system is no longer promoting and sustaining banks’ financial performances in the long run.”

When we consider that these bonuses are “Contractual”, we realise that they are regarded as effectively a part of the salary package. The banks could, in theory, not pay bonuses in bad times, but we can see that this just doesn’t happen.

The only way that bonuses will have the desired effect is to make them discretionary.

Read Professor Richard Wiseman’s “59 Seconds – Think a little, Change a lot”, the section entitled “Persuasion – Why Rewards Fail”, and you will understand why.

By the way, “Barclays decided to increase the size of its bonus pool by 10 per cent to £2.38billion, and revealed this as it announced plans to cut up to 12,000 jobs.”

Bankers and ethics apparently don’t mix!

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