Today it seems that everyone has an opinion on banking bonuses, from the woman on the street to Barack Obama. Many commentators feel that the involvement of governments and regulators in setting the rewards for a small number of banking employees is unnecessary, if not overkill. Others think that the only way to resolve the matter is a salary cap like in Rugby League or American Football. Some simply think that a £1m bonus for doing a desk job is vulgar, irrespective of their personal voting preference.
Economic principles are partially responsible for the different viewpoints on reward. Laissez-faire believers think that the market will ultimately drive pay and bonuses into the right place, but it will simply take time. Interventionists on the other hand believe that the ‘market’ for top banking talent is ineffective or non-existent and therefore different rules are needed. But it’s not only economics that are at play.
Politics and public opinion are also muddying the water, and Labour are desperate to show their detractors that that they can be decisive. Obama must be seen to support ‘America’s Big Business’, and the flow of capital to fund it. Nicolas Sarkozy knows that France lag behind in the banking sector so has nothing to lose by being more radical in his views. The editors of tabloid newspapers need to raise circulation and a few vintage jeroboams always make for a good banker-bashing story.
The FSA’s response to bonuses highlights some of the problems that even the most objective (in theory) can face in coming to a conclusion. On one hand they have accused politicians of “passing the buck” to regulators, but on the other have issued a code of practice to banks. This has resulted in a somewhat half-pregnant position borne out of a combination of responsibility, obligation and frustration.
Very simply, there is no magic bullet, and the continual meddling by governments, quangos, media and other parties will simply serve to draw the debate out longer (I suspect until the upswing becomes a boom, the FTSE hits 5,000 points and England win the World Cup).
If there is a message to take from this macroeconomic melee to apply to our own spheres of influence, it would be to look at how we approach our own process of target setting and the resulting bonus debates in our companies. Finance professionals often have to set targets for peers whilst also trying to overachieve on their own bonus objectives. We need to do this with integrity and fairness but also to keep focus on the commercial objectives of our organisation, both in the short and long term. We need to ensure that our team is constantly motivated, but not only through monetary reward. The glass half empty view is that even for a handful of bankers, the collective brainpower of the world is finding it hard. The glass half full view is that we can probably do better ourselves.
Colin qualified with Arthur Andersen in 2000, eventually leaving in 2002. After a brief stay at Centrica, he joined Carphone Warehouse and worked in assorted roles with Talk Talk and Geek Squad as Finance Director. After working with friends at Mint Digital, a social media agency, Colin is now looking for a new challenge.
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Posted by: Gold Bullion | February 03, 2010 at 07:01 AM