BONUS CULTURE

BONUS CULTURE

A World turned upside down

Comment

The on-going debate  on city  bonuses is important because the bonus culture has leached in to the public sector. The assumption is that bonuses work in that they motivate employees to work harder and to  become more productive. But evidence that bonuses work in this respect is hard to come by.

In 2003 the Harvard academics Nancy Katz and Michael Beer asked more than 200 senior executives in more than 30 countries about their bonus intentions — only to discover that the vast majority of those executives thought that bonuses had little or no effect on how their employees or businesses performed.. Boris Groysberg, an associate professor in the organisational behaviour unit at Harvard Business School,  published  Chasing Stars: The Myth of Talent and the Portability of Performance  on the issue a couple of years ago.    “Exceptional performance is far less portable than is widely believed,” he said. “We found that mobile stars [bankers who leave one company for another] experienced an immediate degradation in performance that persisted for at least five years. Thus their exceptional performance at their prior employer appears to have been more firm-specific than is generally appreciated. Financial compensation is a lever [in motivating success] but it is not the only lever and it is the most overused lever. Banks behave as if stars deserve and should appropriate all the value they generate, but stars without the companies they work for might not be stars.”.

One of the most influential management studies ever  carried out  was by  the psychologist Frederick Herzberg. He  investigated motivation at work  concluding that although pay and conditions could cause dissatisfaction, the reverse was not true: they didn’t generate satisfaction, which came from factors intrinsic to the job itself (challenging work, recognition, responsibility). People consistently overestimate the importance of money for others but for themselves, money is more likely to be a dissatisfier than a satisfier.

Disaggregating one individuals performance from those around him  is also  hugely problematic,  as success is  more often down to teamwork than individuals working alone. A fact that impacts on how  you might incentivise good teachers. Just how much of a pupils success can in practice  be laid at the door of an individual teacher?

With correctly-run payment systems, a bonus  should be  a one-off reward for exceptional performance or the attainment of a specific performance target in excess of the day-to-day demands of the job; it is not an inducement to persuade someone to stay with the employer which is one of the key justifications for city bonuses.  Indeed there is a compelling argument to make that bonuses encouraged the type of risk taking that got the financial services sector into the mess that was the Credit Crunch

As a correspondent to the Times pointed out this week  ‘The job-holder’s salary should reflect the employee’s value, and should reflect the skills, expertise and personal qualities required for effective performance. The banks’ argument for giving bonuses as bribes to prevent their employees drifting away would suggest that their payment systems need revision.’ This is particularly so given that most of the top bankers receive hefty bonuses even if the  shareholder value of their respective company remains static or indeed falls. Look at the value of  Barclays  Investment arms shares over the last couple of years if you don’t believe  me. The main  objective of private sector  managers is to increase  shareholder value. It is equally true that the bonus system  doesn’t really work in the public sector either.  Surely most  public servants are working to the best of their ability most of the time, so a bonus is not going to make much difference. And if they  only improve if a carrot is dangled in front of them, they are probably  not suited to public service. Public Servants if they are doing their job should be improving Public Value  ensuring that their Departments are delivering services more efficiently and are improving productivity. There are no clear benchmarks in Departments to measure such  outputs. Bonuses are now treated in many Departments as simply part of the salary package. If you were asked to identify the most dysfunctional Government Department  you would probably rate the MOD in the top one or two.   Certainly most servicemen do. The MOD  handed out over £47m in bonuses in 2009 , with one official trousering over £84,000.

My case rests.

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One thought on “BONUS CULTURE

  1. This myth being spread around the Political arena and powerful media has become out of control. The ‘bonus culture’ was not the factor that broke the economy, it was FRAUD!!! Fraudulent behaviour is highlighted on the banks balance sheets. Here, the banks, as a business, showed that lending was vast, but re-payments were low. But, bankers continued to lend and paid themselves excessive renumerations in the process. Fact: Banks, or should we say bankers, abused the Labour Governments weak-soft-touch regulation. The market was like Children being let lose in a sweet shop! This is what caused the mess we are now in. FRAUDULENT behaviour should always be investigated, especially given the measures it went to bring down the economy. However, it seems like in the UK there is some rule or regulation in itself that rpevents Politicians and the Media fromusing the word FRAUD and BANKERS in the same sentence. Is this a weakness by the state to defend FAIRNESS, and the burden now placed on communities – particularly, thos who are most vulnerable? YES!!M A Police investigation should have looked at the banks balance sheets – then it would have identified FRAUD! If I had presented such a balance to a bank seeking additional funding for my business, they would not have just said NO, they would have told me how concerned they were that I am still financially incentivising my staff even though the loans I have been given to clients are not being repaid. And they’d be right! So, what have BANKERS got away with this? Why is it that we, the disadvantaged and vulnerable have to pay the price created by those were in POWER and were given TOTAL CONTROL of teh economy. What a FAILING!! And the Coalition Government feels it can begin their work say.”we’re all in this together” or talk about ‘FAIRNESS’ when they talk about policy. What bankers lost their homes, their cars, their financial wealth? NONE!!

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