It's all about value - or is it?
A Small Step in the Right Direction

Why it is time to kill the bonus

Noose Today's the day the new regulations governing bankers' bonuses comes into effect. From today, only 20–30% of bonuses can be paid in cash upfront, and under the Basel III rules, any banker working for an international bank must be rated on a ‘scorecard’ by their employer to justify their bonus.

So what difference is this going to make? I have written previously on how the bankers are getting round this provision and you may think I am picking on bankers. I am not.

It is simply that the whole issue of bonuses has been ill-conceived and even more badly handled. It really is time we dispensed with them altogether.

If you haven't already seen why we should not be paying bonuses, then I urge you to look at this video. I cannot think of a stronger case for dispensing with bonuses. Unless perhaps it is the report in "The Times" yesterday that the Finance Director of TUI travel received his share of a £4.9 million payout (£757,000) only weeks after being forced to step down over a £117 million accounting error! Needless to say the error was not in the company's favour. 

If that does not support my argument that the bonus culture has got entirely out of hand then I don't know what does. Here you have a man who is ultimately accountable for the presentation of the figures in the accounts; figures which have subsequently been proved to be wrong, and yet he still gets his bonus. Truly it is a world gone mad! And the bonus culture does not help.

Only getting 20-30% of your bonus is more than sufficient if you know there is no downside and the amounts are significant, which for banking executives they are. A system of employee ownership along the lines I propose, with "labour dividend" payments replacing bonuses would certainly be more effective. At least it would ensure that there is some sort of penalty for such errors in the form of reduced profits in subsequent years. Unfortunately it would mean that everyone suffers, but at least the pain would be spread more equitably.

And who knows. Such spreading of pain might also invoke the creation of accountability consequences that are present lacking.


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