LJ 2009-02-10 11:07:00
It would appear that Robert Peston doesn’t think that any employee of any bank that received taxpayer assistance should receive any bonus.
The rationalisation for this?
If taxpayers hadn’t rescued those banks then those employees wouldn’t have jobs, let alone bonuses
Yes.. and? That’s something of a non-sequitur, akin to telling a small child that they can’t have sweets, because if Daddy hadn’t gone to work today, Mummy wouldn’t have been able to buy sweets in the first place. I don’t really see how it follows. So I elected to read on, just in case he started making more sense.
So perhaps all bankers should simply count their blessings that they work for banks perceived to be so important to the prosperity of us all rather than for Woolworths – where there was no taxpayer bailout and 30,000 were made redundant.
I see. So what he’s saying is, provided the final outcome for bank employees isn’t unemployment, they should just be grateful. It could be worse.
So I guess I should receive a 10% pay cut, and just be happy that I’ve still got a job. I don’t even care about my own bonus, until this story broke I hadn’t even started thinking about it. Were I to lose it for the sake of keeping people happy, I wouldn’t feel overly bad about that, though it would still be useful to have.
But the point is, I have yet to see a good justification for not paying any bonuses, at least none given by anybody who understands how a bonus is intended to work. Two members of staff might each receive Â£17,000 basic salary per year. One of those people has hit all their targets, the other has not, but has still performed adequately. The bonus allows the company to pay the better performing staff member Â£18,000 while the other gets only Â£17,000.
Now, this money not being a part of the basic salary means that next year, if the person who received a bonus doesn’t meet their targets, the company has no obligation to match their previous salary. That makes good sense business-wise – the pay rate is conditional on performance rather than guaranteed as part of the employment contract. Next year, you can put that extra thousand pounds somewhere else instead if you want.
It also makes a lot of sense because it gives you a way to reward strong performance, without which it might be considerably harder to motivate staff to work well. If two people with different levels of work are paid the same because discretionary bonuses aren’t available, then the person performing less well has no motivation to improve, and the person performing better is going to wonder what the point is, beyond customer satisfaction (which is nice, but doesn’t pay the bills).
But finally, this idea that bankers ought to sit back and just be grateful that they still have jobs holds no more water than telling anybody within the UK economy that they should be grateful that they still have banks. The Tesco employee should be glad they don’t work for Woolworths, right..? And they still have an economy that works, thanks to taxpayer funding – so why should they get a bonus?
Ultimately, the taxpayer did not fund banks for altruistic reasons. It wasn’t some favour that the banks ought to repay by scrapping bonuses – it was an investment, with certain strings attached, and a promise from the government that it wouldn’t lead to political interference in the day to day running of the banks. That’s why an independent company was set up to hold the taxpayer’s interest in the banks. The extent of what the government gets out of it are the favourable terms on which they bought into the industry,
On a personal note, I’ve spent about Â£750 on shares in the bank over the last few years. I’ve also been given (conditional) free shares by the bank, and that shareholding was worth (at its peak) Â£7,000. As a result of the financial crises, that’s now worth Â£500 – the thousands of pounds worth of free shares haven’t even kept my initial investment from shrinking. And there are people far worse off than me in that regard, who have lost tens of thousands.
At this point, a bonus might feel like the least the banks could do for their most loyal shareholders and stakeholders, to make up for the financial decisions that have massively harmed their (usually un-diverse) investments.