I have been listening with the discussions about the bonus(es) paid to senior staff at RBS for with some interest.
Many years ago I was an incompetent junior oik on the Nordic desk at Barings. This was long before Mr Leeson showed how incompetent my bosses were, but that is a story for another day. I had fallen into the job from a much more enjoyable but less well paid one with a small theatre company. I hated it and spent most of my time doing the FT crossword and looking for another job. Thus it was no surprise when I was called in by one of the directors and given three months to find another job. I pointed out that as I had spent the previous three months doing just that it seemed a perfectly reasonable suggestion. The deal was that if I applied for a job in the City they would not give me a reference (well presumably not one that would have secured a job!) but if I were applying outwith the City then they would be happy to comment favourably on all the things I was good at (presumably crosswords and CVs). I was polite enough not to observe that I would rather be grilled with a garden flame thrower than work in the City and agreed to the their terms. Three weeks later I had a wonderful job managing the overseas projects for a development charity. But here is the nub, the previous March I had received a bonus.
Now, as a very junior oik this bonus was, compared to those bandied about in the news today, extremely small. Approximately £2,000. To a junior oik this was quite a considerable sum, and it was a bonus. But I was a lousy banker, due to be asked to leave. Why give me a bonus? Because everyone gets one, it had no bearing whatsoever on my skill and I hardly think I contributed in any major way to the astronomic profits the bank was making in those days. It was an automatic handout.
So now fast forward to Stephen Hester. He has taken over a bank in trouble, like Headteachers parachuted in to rescue a failing school, he is probably worth paying more than someone who is merely guiding a ship sailing in calm waters, IF he can bring the bank through the storm. His job will be harder and he will face more skeletons falling out of cupboards than most. So pay him more UP FRONT. If he is worth X+15% because he is better and the job is harder, then pay him x+15%. A bonus is defined as “an unexpected or extra benefit”, “seasonal gratuity paid to employees beyond their normal pay”. As yet, Mr Hester and his staff have yet to show that they have achieved anything that supports an extra benefit or a gratuity beyond their normal pay. I suspect if the published salary included the bonus and value of assorted share options the outcry would have occurred long before anyone was in post.
There is a lot of talk about dependency culture, it would seem to me that the City has become a society which functions only because of its dependency culture; a dependency on bonuses. Bonuses are paid regardless of performance, they are considered a right, part of the pay deal; as the ink dries on the contract the bonus cheque is probably being raised in the Finance Department. Perhaps if City bonuses were genuinely paid for proven merit we could learn to love the banker again.