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Contrary to expectation, it seems a comfortable majority of people are still receiving bonuses this year.
We ran a poll enquiring about bonuses a couple of weeks ago (ie. before European banks announced, but when most US banks had already revealed their numbers); 75% of respondents said they’d received some form of payout.
An even larger majority of bonus recipients felt their bonus was deserved and reflective of their hard work.
Since then, the furore over the award of bonuses at institutions which have received money from the state has intensified. There are accusations of ‘raw capitalism’ and calls to ‘bring back the guillotine’.
Paying bonuses is starting to look very much like showing a cauldron to an Inquisitor or waving a red rag at a bull. The US website The Daily Beast says banks have badly screwed up their PR and would have been better off publicly freezing all salaries and bonuses (or maybe paying nothing at all) until things died down.
Given the public backlash, has it been a mistake to pay bonuses at all this year? Bob Diamond apparently thinks not – he tells The Guardian today that BarCap has “performed well in a difficult environment.”
But are bonuses really still necessary now that the ‘war for talent’ has been relegated to the distant past?
And why do employees at loss making banks, or banks in receipt of taxpayers’ money, merit performance related pay at all?
Let us know below.
Bonuses are still necessary because I made money last year and I expect to see my share. Don’t pay me – that’s fine – I’ll go somewhere that will (and yes, there are still options if you’re any good).
“because I made money last year and I expect to see my share….”
No, Roger that is not how it works now. If your firm is bust, it doesn’t matter if you made money – YOUR FIRM IS BUST. If it got taxpayer’s money to prop it up – it was about to go bust. If your firm is bust and your division’s MD is a genuine business manager not some cocconed elitist who (still) has his head in the clouds, then he should be giving you NO BONUS. If I was your manager, I would call your bluff and say “fine, you want to go somewhere else? You want see what is out there in the world? Go ahead, be my guest”. I have recently done it to some wannabe hotshots who thought they were indispensible to the bank. They are still here…….
Bonuses are not necessary. We can lessen at our job descriptions if they want to !!!!!.
Easily….
“….because I made money last year”
Short horizon risk taking to get a decent bonus at year end needs to die – it’s what caused this mess.
Millions of people working outside banking are also making money for their (solvent) firms and not getting the bonuses. That’s called a job.
I suspect none of the other people commenting on this blog is in a position to receive much of a bonus this year. To reiterate – I made several m for the bank I work for. I am a top performer, with a top education. I have sacrificed a lot to get where I am and my performance is unmatched. Magoo, I have performed consistently over a period of years. Ok, my bonus will be down this year. But I do not see why, if I continue to produce outsized returns for my employer, I should not be paid accordingly. If I wanted to earn 50k a year and watch East Enders every night, I would have made that decision years ago.
roger -
read TradingMD’s comments again…..very carefully. So what if you made millions for bank? If the bank you work for is insolvent you should get nothing! You are not an independent business on your own!!! You still trade / sell/ whatever under your bank’s brand name which means if the bank is kaput, the profits you make are used to cover the losses in other divisions of the bank. Bonuses are paid not when divisions make a profit but when the bank AS A WHOLE makes a profit. Get over yourself.
Have to agree with MrMajestyk and others. Roger mate, your arguments for demanding huge bonuses for performance at insolvent banks, are untenable.
I agree with Roger, I’ve made money trading liquid products. I could get out of all my positions any time. People in my position deserve to get paid.
I would have to agree with Roger and John. I think it is somewhat unfair for someone who performs well CONSISTENTLY to be penalised because others in the same institution performed badly. How is that just? As an employee you are NOT a shareholder or OWNER of the bank as a whole and so should NOT be penalised for performance beyond your control or remit.
To illustrate, if you are an estate agent and you outsell your colleagues. Do you think it would be seen just to then forego your commissions on the basis that colleagues were in a net loss position?
I don’t think so.
Roger & John,
Your sense of entitlement is truly shocking. If you are working at solvent banks and making money – then good for you. You should be rewarded.
But…….what is this article about? It comes down to bonuses at bankrupt banks. Woolworths, a UK retailer, recently went bankrupt. Now if you were a top salesman selling kids toys at Woolworths and made a big profit in that division for Woolworths, but the company still went bankrupt anyway, do you think you would get any bonus at all? Absolutely not. How is that different from selling or trading “products” for a collapsed bank?
SUT -
There is a difference between a company having a net loss position at the end of the year and it being bankrupt by the end of the year. If it is declared bankrupt, this means that it has to pay creditors to whom liabilities are owed as well other counterparties with which it trades. Every penny counts. I know this because I work in insolvency at a big 4 audit firm. Can you imagine a situation where a bank being declared bankrupt, owes a hedge fund counterparty a huge sum of money and they can’t pay it.. because a multi-million pound bonus was given to a trader in another division of the bank?
Am amazed that Roger got a job in the first place with that superiority complex of his….. saying that I just resigned and still got my bonus….swings and roundabouts I suppose
I got my 250k bonus this year and I definitly deserved it. Being the best, I am entitled to the best compensation. I blame all these poor guys earning 60k who cannot enjoy top model escort girls and the fanciest restaurants… Guess they weren’t smart enough to join the elite of banksters… What I have I owe it to no one but myself -and maybe dad who got me this position in the first place and put me in the fanciest private school ofLondon where I could network at the age of 5 with my future hedge fund clients- Thank you daddy.
I got my 250k bonus this year and I definitly deserved it. Being the best, I am entitled to the best compensation. I blame all these poor guys earning 60k who cannot enjoy top model escorts and the fanciest restaurants… Guess they weren’t smart enough to join the elite of bankers… What I have, I owe it to no one but myself -and maybe dad who got me this position in the first place and put me in the fanciest private school of London where I could network at the age of 5 with my future hedge fund clients- Thank you daddy.
Has everyone lost their minds? Get rid of the rubbish by sacking them (save the bonus conversation). Keep those performing and award bonuses, may be slightly less than year before, and pray that they continue to deliver to bring you organisation out from this pit of government ownership quicker. If you just loose these guys who are performing your revenues will shrink further … get the big picture!
PS I am not front office and will not get a bonus
Bankers and management should never get bonuses in the first place. Bonuses are for sales people. So, if you sell something (as investment bankers do, but they are not really bankers, are they?), a bonus is still in order even if the firm you work for is broke. Bonuses are a part of revenues and if you bring in revenues for the firm you should get paid for that. No firm can stop paying their distributors only because they lose money elsewhere.
Also, they actually take a personal business risk – just try selling, well, anything in this market right now. Low base salary and a share of revenues, as for brokers and asset gatherers since the beginning of times.
Management and other non-revenue making people should be rewarded with comparably higher base income as they have a comparably secure job, much less stress and let’s not forget much less competitiveness.
As for Traders, that’s easy too: Just pay for realized profits minus open risk.
Bonuses are very necessary and it is fair for employers to reward remployees if they do a rewarding job. How are we suppose to motivate people if we don’t financially reward them. I completely agreed that we need to learn to montior what we’ve paid out and the reasons behind the bonuses. But there is no point cutting bonus to nil. Let be sensible, we would like to strip the person naked for bringing the financial sectors to its keen but lets not blighted everybody future for others behaviour. Yes, lets shake up the system, but lets do it based on strategy and principles and not just stamp one law that goes for all.
If goverment or the financial world decides to stop paying bonuses, then I am afraid we won’t have an effective finanical system abnd therefore we are making the matter even worse.
I completely disagree with Roger. Yes you made money consistently for the Bank but for this year the overall position of the bank is in RED and the bank could have gone under but for the intervention of public funds. Would he still be claiming a bonus if the bank had gone down? If the bank is not paying a bonus this year and he strongly feels otherwise then he can take his act elsewhere and see how many takers are really out there. He’ll be surprised at what’s actually happening in the market with so many PHD and other bright guys fighting over available placements.
Sorry Roger/John & others who agree with them but you are not private investors- that’s the bottom line here.
When it’s your money, it’s your risk and your profits, not so when you work for others. In this setup, you are jointly responsible to make the company profitable. When it goes under, they drag you with them.
Think of it as fighting a war, it does not help if your command kicks arse in a battle if the war itself is lost.
This is a stupid discussion. Morality has nothing to do with this discussion. As a taxpayer, I want the banks that I now own to continue to employ the Rogers and Johns of the world so that there’s a non-zero chance that we will get our money bank. When you slice out all of money-makers from the organization, who is left? We are shareholders and owners of the companies now. THINK LIKE OWNERS, not like God.
ask a lawyer or a doctor if he wants to get paid 10% of his annual salary on a monthly basis and the other 90% at the end at the discretion of his boss and subject to clawbacks if the bloke on the next desk (or court or ward) performs badly. he’ll laugh at you.
when the dust has settled there will be much higher salaries in banking and bonus will make up a much lower percentage of total comp. losing your job will be a much bigger problem and “traders option” behaviour will be disencouraged; the downside of short termist behaviour will increase and the upside decrease.
people should be well paid (in basic) for building a quality income stream not have to wait and hope until yearend. zero sum game punters should not be hugely rewarded for rolling the dice
Bankers are a bunch of half-wit pigs with big snouts and, right now, small troughs and a very bad odour
I also agree that if your institution has been bailed out by the government then you shouldn’t get a bonus.
By the way SUT, estate agents work on commission so their basic salary is generally quite low hence why the pay structure is such. You can’t compare the two areas I’m afraid.
It’s PAY guys, PAY! Forget the distinction of salary/bonus, that’s a decade out-of-date. If I get zero bonus (some likelihood this year), then my PAY will be a lot less than I could earn in another, parallel, suit-wearing career. So, if I am not PAID a good amount, the banking industry will need to find someone else willing to work for a frankly lousy base. Not going to happen.
Banking is a horrible place to work, and the (traditionally) high levels of PAY make up for it.
So, the future?
1. Higher base PAY, lower variable PAY (seems weird, doesn’t it?)
2. Nicer work environment, training, lower turnover, partnership model etc
3. Lower cost-of-living in London as all the overpriced houses, restaurants etc. rebase
Back to 1992 by the sounds of it. Of course, we could just do banking in the pub with typewriters and tippex, but that would be 1982…
bonuses–or more accurately–deferred salary are a part of staying in business. If you can’t pay your people then shut down or merge. if a bonus is really all about something extra then increase salaries to a reasonable wage and then bonuses will only be paid when profits are above plan.
“I think it is somewhat unfair for someone who performs well CONSISTENTLY to be penalised because others in the same institution performed badly.”… if you were such a performer and risk-taker, why arent you running a trading business where you would be paying yourself? … employees share the fate of the business. thats the way the cookie crumbles, i guess.
Cost of funding – capital consumption. Some (not the most experienced) traders think they can make money out of nothing.
the reality (at least mine) is that a trader who is not part of a solid bank can make as much money as its asset managenent counterpart.
Roger – just leave .. go on , do it
The answer is simple –
Its not an employee’s market anymore. The tables have turned- its an employer’s market now. If u threaten that you are the gift of god and will quit if u dont get a bonus, ur employer will tactfully say, “go take a walk” and will only be too happy that a white elephant has left – because boards are now starting to say, doesn’t matter if u dont make a spectacular profit in 2009, but instead focus that asset quality being booked is good, go slow on asset booking because there is anyway no funding, protect existing revenue streams as much as possible, and CUT costs by as much as 30%-40%.
So lets pray that we continue to have our jobs, continue working hard and smart, silently take home whatever we get, and hang on till the clouds clear and the tables turn again in employee’s favour.
Well…. Sounds like the three moppets above (Roger, John and SUT) are linked somewhat to what has caused, and has been uncovered during this current crisis; overtly egotistical, full of themselves greedy individuals who will stop at nothing and believe that they are untouchable, and indispensable to their employers.
Might I remind them that no mention is ever made in these blogs of the clients they so called look after!!!
Mr Majestyk has nailed it and believe me, if these characters ever had their own business and had employees remotely similar to themselves they might start understanding what they are insinuating!!!..
Roger represents the “typical” banker. I doubt he ever put his own money at “risk”. And I know what I talk about because I have been working in banking for 20 years. They just do NOT understand how a business works. Let’s use another example. Roger, I give you an award winning Porsche. I know you are a good driver and I praise you for that. So, we all believe you are going to win the race. BUT, some problems with you tires occured. Into the race, let’s say round 30 out of 52, 2 of them blew up. Now, you may be a fantastic driver with a fantastic performance up to round 30, but your tires blew up because your management thought they don’t have to check the product reliability/quality of the company that manufactures the tires. Roger, whatever you did as a driver the first 30 rounds, you lost the race because your tires blew up. Therefore, look at your bank’s P&L and Balance Sheet first before you demand a bonus, pleeease. The ignorance you guys display is mind blowing…
Bonuses should be paid in line with work expectations and company performance. I think a lot of people just expect that a bonus will be part of their salary, especially Bankers. But if your company has a bad year, I don’t think anyone should be getting a bonus, including the man at the top.
That doesn’t mean we should abandon bonuses because they’ve become a political dirty word or the grinding stone of those with career envy, it just means that they should be applied when deserved and with in reason. Maybe the government can apply a new test – If your company has made a genuine profit, give out bonuses.Offer more equality amongst wages making sure that the best paid employee is not paid more than 15 times higher than the lowest or that the pool of funds used for wages, is more equally distributed instead of being the usual 70/30.
But by completely taking away the bonus all we’re doing is kicking an already struggling economy and taking away what little incentive there is left in the system, to generate profits.
Perhaps a rewards could be given over the longer term, to help remove the short term profiteering.
Love this.
Roger, John, SUT et al coming in for a lot of criticism. Though i suspect that some of what they’ve posted is intentionally inflammatory, and a little tongue in cheek.
For what it’s worth, i’d ask people to consider this: there are SOME divisions of some banks that made a LOT of money in 2008. Take Foreign Exchange as a good example, cited by people in the know and indeed by many national newspapers in recent weeks. This creation of shareholder value is, in the case of an FX business for example, realised / readily-realisable P&L, and typically of (relatively) low credit risk (well, most of it is). Now, without these revenues, the full year performance of many banks would have been EVEN WORSE. If banks choose not to pay the people who work in such areas, they risk losing key staff, and risk not being able to make the same money in future years. Banks have to make difficult COMMERCIAL decisions to pay people that have the potential to add value in the future. This isn’t always going to be palatable when the organisation as a whole has lost money, but not to do so is akin to cutting off one’s nose to spite one’s face.
fxo man,
what you have described in commercial terms is that someone who is good at FX is a “turnaround specialist” right now. The banks are bankrupt and it will be guys who are in high profit areas like FX, will help them to turnaround and become solvent, profitable companies again someday in the future.
In the meantime……..
The banks which received government bailouts are effectively nationalised. The FX trader at those banks works for the government now. I’m not saying the FX trader shouldn’t be rewarded, but that a big portion of his compensation be paid in the bank’s shares. If and when the bank becomes profitable, the government privatises the bank and the FX trader gets to sell his shares at a big profit, becoming hopefully a mutli-millionaire. Fair reward for solid, profitable work. What I would find UNACCEPTABLE is if every year until the bank becomes profitable again, the FX trader gets a huge CASH BONUS.
If you are an exceptional individual, constantly making money for your trading desk, why work for a bankrupt bank? Setup a company and trade with your own money. Why be restricted by all the failures around you?
XYZ – fair point, and i agree that in order to better align employee interests with that of shareholders (and other stakeholders) we need to develop new compensation profiles; equity rather than case; deferral; clawbacks. All have their merits and pose logistical challenges.
Alex – people like you really frustrate me: bitter, overly-aggressive, overly facetious. You clearly have a very limited understanding of how Investment Banks work. Profitable trading books aren’t simply about taking punts (you suggest merely “trading with your own money”). It doesn’t work like that.
fxo man, you’re living in denial. Banks have failed and are/will be nationalised. There are also profitable parts of The Post Office, but the guys there don’t receive huge bonuses. Not sure what ‘shareholder value’ you’re on about; most banks will have the same shareholder as the NHS and DVLA in Swansea.
Deepak – i hate to reiterate my criticism of Alex, and to labour the point, but you quite clearly do not understand (a) my points or (b) how banking [or, indeed, other successful commercial operations] operate.
Profitable parts of the Post Office? Maybe, but the kind of work done by MOST of the staff at the post office are, at best, semi-skilled. I don’t see the point you’re making… as far as i can see you’re just trying to be funny! (which is fair enough, but contributes little to the debate)
Finally, correct me if i’m wrong, but i THINK you’re alluding to the fact that many of the bank shareholders are now the taxpayer? This is true, but then all the more reason to want to preserve (and grow) what little value remains (little in % terms, but billions of pounds in absolute terms). By simply sacking everyone, or paying zero bonuses we will just drive talented employees, capable of making money, away to other institutions.
Re-read what i initially said about cutting off nose and spiting faces…
Seems to me there clouding of the issues here. You have to take each area as seperate. Clearly a failing bank should not be giving bonuses to its top men, they’ve failed, but that doesn’t mean the desk clerk on a pityful wage has done a bad job, they need that extra cash and incentive.
Using a prior example of war. If the leader of one of your batallions strikes a great battle victory, you reward him with a medal and it inspires people around him to do the same, yet if you lose the war its the commander in chief that needs to take the fall- rightfully so, thats what they are there to do.
Its the big picture and seperating areas out – ultimately the guys at the top take the responsiblity, thats what there paid for and rewarded when they do well, the middle guys if preform well deserve praise and incentives, otherwise how do you inspire workers?
On the flip side, i’m not defending arrogance or “god complex” people, there has to be reforms to the bonus culture, and i think Hornby got it right when it should be linked to mid to long term preformance. To legislate on this however, is going to be a tough call.
The inevitable sequence of events is this. Some banks will pay ridiculously small bonuses. Some of the people working for them will tolerate it. The best people though will either go to another firm or stop working at all. These banks are doomed. Eventually smaller aggressive banks that were not affected so badly by the crisis will hire some of the best people and play hard. It is an extremely competetive environment. If I was a shareholder and heard that my bank reduced bonuses by 95% I would sell immediately!!
Possibly, the bonus for those employed by the quasi-nationalised banks should come in the form of a tax rebate of 0.5% or so.
Just to make you feel good when you have worked for Mr Gordon Brown and his inspectors at the FSA. Beware, they might wear the glove …
It’s a question of culture, for years banks have been a place where managers have stressed the importance of the individual’s achievements. If the bank made money and you didn’t make your budget, you were out. So pay as a function of individual rather than collective performance became part of the “social contract” of banks. If suddenly the rule changes, whether it was a just rule or not, people feel cheated, obvious. The former culture had its justification in a world where it was not possible for 5% of the workforce to blow up the remaining 95%’s balance sheet.