Sunday, 15 February 2009

Derail the gravy train

I loved these two paragraph's from Gerald Warner's Telegraph blog. It perfectly sums up the issue of financial sector bonuses.

What we are witnessing here is the murder of capitalism, not by the usual suspects - Marxists and other corporatists - but by supposed practitioners of the free market. There is a difference between capitalism and cronyism. The universal alibi, on both sides of the Atlantic, for ludicrous bonus payments has been: "If we do not reward our best executives, our competitors will poach them." Only if competitors are paying bonuses too, is the obvious rebuttal.

Each institution is justifying its own cronyism by pleading that everybody else is doing it. Very well: stop them all. What will the highly prized employees, with achievements such as losing $27 billion on their CVs, do then? Take the hump and go into school-teaching? Rigorous free marketeers say it is unacceptable for governments to set limits to remuneration in private institutions. In normal circumstances, that is true. But when a government has become a major - or even majority - shareholder, it has every right to impose its views in the boardroom. This gravy train must be derailed.

5 comments:

aSteve said...

I had a discussion about this with a recruiter in 2006/2007.

The recruiter argued that 'bonuses are understood to be an essential part of the remuneration package'; 'bonuses can be relied upon'; 'bonuses lead to greater total remuneration'.

To which, I replied, I've a rate I expect - I don't want a bonus. If the bonus is assured, there's surely no reason to consider it a bonus? I'm quite happy to waive any large windfall for a basic rate with which I am happy.

Bonuses are not, in my opinion, about "retaining talent" (for that, it would be best to compete on salary.) I think bonuses are a bribe/threat to employees to keep quiet about anything they see that looks dodgy - since, otherwise they may lose personally. It encourages employees to be complicit in any fraud they discover... and, what's more, by making the bonus culture pervasive within the industry, it encourages a even those with ethics to consider their colleagues before blowing the whistle. It is insidious and underhand - I don't like it.

Anonymous said...

aSteve: "Bonuses are not .."

A couple of my colleagues have joined and left, when they joined they had a bonus written into the contract. Can't see that as a bonus really, either.

"If we do not reward our best executives, our competitors will poach them."

Funny how the politicians were happy to echo the same self serving drivel.

Anonymous said...

And where has all that money gone that taxpayers have replaced, and will be doing so for years? On excessive bonuses in large part. No other "industry" (a euphemism) pays 50% of profits in bonuses.

Money was made by those who sold property or developed property and got out early - but most of the lingering debt paid bonuses. And they still want to be paid excessively?

B. in C.

dearieme said...

Really, it wasn't Capitalism at all. It was Worker Control, but by only a part of the workforce. The looted the joint, which is what worker control usually does, I believe. How does John Lewis avoid it, I wonder?

Anonymous said...

a) Not all the people in all the banks lost money. In fact the majority didn't, it is just a small number lost alot...

b) A large portion of the bonuses being paid out are contractual obligations. I doubt there are many investment bankers getting substantial non-contractual bonuses and a guy who was "talent" two years ago probably isn't so now.

c) The government is a majority shareholder in one bank and a major shareholder in another because it bought another troubled bank at the government's insistence - along with threats to anyone who tried to derail the merger. As for the two banks it owns outright - they are paying out bonuses but with all the grandstanding by MPs and journalists - who i notice are not crying out to hand back part of the contractually obliged remuneration - these banks aren't being attacked.