Added Bonus

It was probably inevitable. Actually, it was inevitable. I've been waiting for it to happen, and I've not been disappointed. Northern Wreck were first in the firing line, and now the other banks are following suit and announcing this year's bonus payments for staff.

Since the collapse of the sub-prime market triggered, or contributed, to the worldwide recession we are now sliding deeper into, Politicians who should know better have taken easy potshots at overpaid bankers and their obscenely generous bonuses. It is this bonus culture that blinded them , in their greed, to the greater and more dangerous risks they were taking.

And maybe they're right, maybe the bonus award schemes that some of these high-flyers were on did encourage reckless behaviour. As such, perhaps the way these bonuses are constructed needs to be reviewed, but I think that perhaps it is a little rich of the Government - who sang the praises of our Financial Services industry - to condemn them so roundly.

The morning press seems to have split its attention between Jacqui Smith (who 'denies all wrongdoing' - journalist speak for 'guilty as sin') and her immoral (if maybe not illegal) expenses fiddle, and Brown taking a tough stance on bankers' bonuses. Yvette Cooper's performance on the Today Programme blunted what would otherwise have been a strong moral argument (not helped by Jacqboot's startlingly brazen abuse of public trust), on which Iain Dale has a few words to say.

In this instance, Cooper called for bankers to exercise their moral judgement and not accept their bonuses, even if contractually their employer was obliged to offer one. Perhaps a fair point, but who are these bankers? The once high-flying investment monkey, the one who 'caused' this mess (rememeber him?) and his massive six-figure-plus bonus, or the teller in the branch, with a much more modest bonus related to customer service and product sales?

Chances are, the tellers, Customer Advisers, Mortgage Advisers and so on and so forth, are on relatively modest wages as well - their bonus makes a big difference to them, and is a reward for good performance. Who is to say that these front-line staff don't deserve their bonus? They've worked hard, fulfilled their contractual obligations, and it's time for them to get their reward. Whether or not my taxes are propping up their business or not - and let me make this clear, the money that pays that bonus has nothing to do with the money from the Treasury, operational budgets will be covering those payments, not the capital liquidity provided to encourage lending.

Much more thorny are the executives who stood by, fingers in ears and eyes tight shut singing "La la la" and hoping that the disaster would never come and the good times would never end. Have they performed well? Have the investment monkeys who took the risks and rewards and drove us to the precipice performed well? Do they deserve their bonuses?

Here's where I agree with Cooper, but not wholly. I'm not sure it's fair to ask anyone to turn down their bonus if contractually, they were only doing what they were encouraged to do. If we look at their performance review and it turns out that whatever the consequences were or have been, they have ticked all the boxes for what they were supposed to do, it is manifestly unfair of us to then move the goalposts and say they shouldn't have it.

Instead, given the noise being created over this, I would suggest that the banks need to review their rewards schemes to ensure that bonus payments can reward high performance but not encourage irresponsible practice. This is one area I think the regulators should have been involved, not just in terms of how the banks operated, but how their pay and reward systems were structured.

It would be dangerous, though to tar everyone with the same brush. Most of the bonuses paid aren't for the fat cats - but they'll certainly see the largest slice. Just don't let that blind you to those who really do deserve it.

UPDATE - entry by Dr. Eamonn Butler on the Adam Smith Institute blog, makes my point but a lot more succinctly.