Unexpected fall-out of bonus reductions

I saw in the paper this morning an, to me, unexpected fall-out of the slump in City bonuses: a number of divorcees are approaching their solicitors/ ex-spouses with a request to renegotiate divorce settlements. These of course have been negotiated with the expectation of solid bonuses that are now not forthcoming.

This though is probably overshadowed by the expected but, even so, scary record loss reported by RBS: £24.1 billion! This is the worst business loss in UK history – those record numbers just seem to pop up all over the place these days. £16.2 billion was caused by “must have” ABN Amro, this certainly have proved a costly decision and made despite several warnings. (I wonder why the word ‘irresponsible’ keeps popping up in the back of my head.) The plans are that the taxpayers are to cough up with another £25.5 billion and in return we get all the toxic waste from RBS. Hmmm….

Stanford or bust? Or maybe both…

I just finished an Open Evening for Prospective MBAs. Having been on the go since 9am I am obviously a bit worn by now but I just wanted to share the excitement that is in meeting prospective new students – the getting to know them and finding out what are their motivations and objectives. The Open Evenings are mostly attended by people interested in out part-time MBA programme but not all. Later on, on 5 March we have an Open Day and here most attendees will be focusing on the day-time programmes.

Big in the news just recently and still on-going is of course the Stanford scandal. It is expanding all the time and sorting out this mess is going to be, well, messy because of the intricate structures in the Stanford empire. It would appear that there is no single company that is behind everything else, no entity that can be targeted to bring the whole thing down. Is that very clever or very crooked? No matter the answer to that questions, it would appear obvious that there is no regulation in place to avoid such things. Otherwise, we would of course have put a stop to this a long time ago. Or would we? According to the FT some of the issues leading to the expected collapse were identified but after having paid a $10K fine the company was allowed to continue business as if nothing had happened. Food for though ehh?

Wanna chat?

If you are a prospective MBA student and you want to learn more about the Edinburgh MBA then join me tomorrow 24th February 2pm GMT for an on-line chat by pointing your browser to: http://www.business-school.ed.ac.uk/chat/chat.html
Other chat times will be announced here as well.

If you want to check when this is where you are, then use this link: http://www.timeanddate.com/worldclock/

Hope to meet you for a chat!

Coming to Toronto on 28 February?

If so then you may want to come and meet us at the World MBA Tour at the Metro Toronto Convention Center.  You will have a chance to speak to a representative from the School as well as recent MBA alumni.  Hope to see you there!  If you read this after and missed us there then just use this link to read about our programmes and also the scholarships on offer.

Some interesting news from the School is the new Centre for Charitable Giving and Philanthropy.  The centre is funded jointly by the ESRC, the Cabinet Office, the Carnegie UK Trust and the Scottish Government.  The School is one of the co-ordinators, represented by Professor Stephen Osborne.

Looking outside the School my main concern these days is the job prospects for my MBAs.  A bit of news from boston.com suggests that many MBAs across the Atlantic are adjusting their career aspirations.  As the big banks there have cut thousands of jobs  US MBA graduates expect to have to fight for the few positions available in finance.  Another issue of course is the newly minted MBAs will have to fight those that have been laid off, people with experience.  Things are not much different this side of the Atlantic so a very difficult time, even if we do try and increase the support from the School.

Bonuses and other stuff

Entirely as expected we now see increased focus on the bonuses offered by the FSA in the UK.  You will remember that I referred to the remuneration scheme at the FSA in my last entry, all boiled down to meeting objectives, contribution to success and goals and a behaviour valued by the FSA.  If I can be cynical – I wonder what successes might be rewarded this year?

Don’t get me wrong.  I don’t begrudge the lowly paid minions their bonuses.  They have had no opportunity to do anything about the mess we currently find ourselves in, and their private budget would collapse without this bonus.  But should we pay fat-cat bonuses to people who already take home enormous salaries and who had the knowledge about the imminent mess and did nothing about it?  But yes, we can go on and on about past mistakes.  This is only good if we learn from it so can the bonus system undergo a major re-haul in the next 12 months please?

I was just leafing through my diary this morning and I realised that I will be sending off my students on the MBA in International Business on their exchanges in about six weeks time.  Yup guys, just another six weeks to go before you are off.  Amazing how time flies when you are having fun.  After the exchange comes the internship and then the dissertation, and the sad fact (for me anyway) is that some of my IB students will not return to Edinburgh after 1st April. After the dissertation they will fact-track into their (new) careers and be far too busy to attend graduation.

At the same time as writing this I am of course in touch with and assessing applicants from all over the world who want to come here in September and this just goes to show the cyclical nature of life in the MBA provide lane.

Bonus or no bonus?

Love it or hate it but I do have to touch upon the issue of bonuses in the banking world. This is so to the fore of peoples’ minds in the UK, especially because a certain bailed out bank has been reported to preparing to pay £1bn in bonuses. Yes, it is RBS I’m referring to.

A reaction to this from the FSA’s new chairman, Lord Adair Turner was that it was necessary to ask important and difficult questions about the bonus systems found in the world of banking. The view was echoed by the PM, Gordon Brown who referred to certain unacceptable features of the bonus system. A system that could be seen not to reward long-term benefits and growth but rather short-term and risky behaviour. Lord Adair Turner went so far as to say that the FSA could penalise banks who pay bonuses that encourage the wrong kind of business.

Let’s pause and look at the remuneration scheme at the FSA. Here we see rewards related to meeting objectives as well contribution to success and goals. So far nothing very different from the banks and this is the same for the criteria for annual bonus rewards – performance and delivery. But then we get to the third point: “demonstrate the behaviours we value.” I expect/hope that these values are made clear by the FSA.

And that is the point really, are the values of the company made clear? Apparently the values of certain banks until now have been gains for the sake of gains but nothing about the nature of these gains. So yes, a revision is essential.

So now many people in the banking world now fear for their bonuses and that is fair if you are on the low rungs of the ladder and need the bonus to balance your personal books at the end of the year. But the fact-cat bonuses? No, I can’t support that.

KPMG thinks it unlikely that the regulators will want to instill rigid models but do expect pressure on the bonus scheme and foresee big changes to these schemes in the future. Some experts expect to see more bonuses paid out e.g. in the form of shares that cannot be sold for several years and this I suppose could instill in employees an interest of that of the shareholder who is often in the ‘game’ for long-term gains.

A personal closing note: I am a taxpayer of the UK and I bank with one of the bailed out banks that may use my tax money to pay fat-cat bonuses. Will I choose to take my business elsewhere if they persist in that? I am very likely to.

1%

That’s how low the base interest rate now is in the UK after Bank of England announced the half-point reduction. This is the lowest in the Bank’s 315-year history. The good news is that many mortgage providers have promised to pass is on. Is this good or bad news? Well the hope is of course that it will contribute to getting the wheels going again but commentators say that this isn’t enough.

A bit of good news for Scotland at least is the announcement from the Royal Bank of Scotland to make an additional £250m of funding available to small and medium sized companies in Scotland. £250m is not a lot in the wider scheme of things but to many SMEs a windfall may come very handy in these icy times.

Ohh, and did you see the brilliant argument by BBC’s Robert Peston in his blog for why bankers should not receive a bonus? Check it out for yourself.

And finally for something pretty amazing you should check out the annual snow festival in Sapporo, Japan. The ice sculptures are impressive.