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.