UK
THE OUTSIDER: All bonuses should be public knowledge
5 December 2008
Just how fat are the fat cats of the City? If the popular press is to be believed, every banker gets paid millions, even if he or she is stupid, lazy, or unproductive.
Their version of reality says that if you are a PhD working in financial engineering and recklessly endangering the safety and well-being of the world as we know it, you will get paid even more. You will start making this kind of money while still in your twenties, and you will carry on making it until you retire or burn out.
Add to this caricature the belief that people in banking rarely do any good with all the effort they put into their work, and it’s easy to come to the conclusion that they are fundamentally undeserving of the good fortune they enjoy. So let’s all give them a good kicking.
I understand why the City isn’t too popular right now. Systemic failures and poor leadership have nearly impoverished the whole nation. Moreover, the fat cats have had to be bailed out by taxpayers, most of whom only get to dream about million-pound bonuses. So it’s an easy and cheap shot for journalists and politicians to talk about City pay.
Guess the bonus
But what is the reality, and should we be more open about it? Part of the City’s problem is definitely of its own making. The traditional investment banking approach to the bonus round is to surround it with mystery, swearing people to secrecy, playing games of smoke and mirrors internally that keep top management in the know and leave everyone else guessing.
This guessing game means you don’t know how much the person at the next desk earns. Nor do you know what your boss gets paid. The only pay that’s known is that of main board directors in listed companies like Barclays, whose numbers are disclosed by law – and what the firm chooses to disclose. In the hedge fund world, occasionally the annual report and accounts reveal what the top people individually or collectively may have taken home, but no-one can really be certain.
Further down the food chain, even quite senior people having a major impact on the firm’s fortunes have their compensation cloaked in secrecy. It’s always been this way, so why change it? It works. It gives management control and discretion and stops them being accountable in the way they would if we all knew the magic numbers. Knowledge, as they say, is power.
Publish the numbers
And that’s exactly it. In order to rebuild trust in the future, there will have to be greater accountability by management. One great leveller would be to create an open, honest, level playing field on pay.
If one person gets paid more than another, publish it and be prepared to have the difficult conversation about why this is. Be prepared to have everyone on the team know your number, too. If you really did take 90% of the bonus pool, at least be ready to look them in the eye. If you take on a hot shot from another firm on a guaranteed package with a big sign-on, publish his number, too.
Everyone would be a little more uncomfortable, under a little more pressure to perform, and management would be under far greater pressure to manage. But at least everyone would have clarity about what is ultimately the best guide to how they are viewed.
If this seems inconceivable, ask yourself whether you ever expected the top management of some of our greatest investment banking names to announce that they were going to lead by example and waive their bonuses. Extraordinary times call for extraordinary measures. If the industry takes the right radical steps it will emerge the better for it.
David Charters' book, Trust me, I’m a banker, is published by Elliott and Thompson, price £9.99.
David, I applaud your good intentions and I like that you are actively proposing solutions for some bad practices in the business. But.....
With all due respect, what I earn is one of the most sensitive pieces of information about my life. Along with my bonus, you might as well publish data about my sex life.
I am loath to even tell my extended family about the house I bought, for fear of resentment and hatred. If my competitors, er, colleagues in the bank know my compensation package I fear there will be enough underhanded tactics to stop me being promoted or worse.
This is a really big issue for me and while I appreciate what you are saying, I could not possible support it.
TraderVic 05 Dec 2008
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