Blogging from the Highlands of Scotland until I return to the Murcia region of Spain in the Autumn for a month or so
'From fanaticism to barbarism is only one step' - Diderot

Monday, 9 February 2009

Banks and bonuses

I spent my career in one of the world's largest international banks as it so happens. We had bonuses most years, probably every year (to my recollection) and for most people this was a 13th month of pay, usually paid out in December with the salaries for that month. Now whilst most people implicitly 'expected' to get this bonus, I do not think that anyone was under any illusion that it was anything other than discretionary on the part of the Board of Directors; certainly in every office or branch of the bank where I worked, receipt of that crucial telex from head office was eagerly awaited, giving authority to release the extra funds, after the Board had met. We never assumed it as a 'done deal' until that telex was received.

I find it difficult to understand how institutions which now exist only because they have been 'bailed out' with public funds should be paying ANY bonus at all. We are being told by government ministers that some of the banks which have received public recapitalisation and which are now effectively controlled and owned by the State have contractual obligations to pay certain specific bonuses. If so I would like those contracts to be scrutinised very meticulously, because they usually contain specific 'performance' clauses - so I find it difficult to understand how the level of employee who has such a specific bonus clause in a contract, presumably a pretty high-level grade of employee, can be totally unconnected with the issues which have caused these banks to 'implode'. Sure, some of these employees would be disappointed, angry even, if their bonuses were cancelled, but that is life - my personal investments in a number of banks and other types of company have taken a dramatic hit over the past year; they pay dividends when they make money, not when they don't and some have been effectively nationalised or have simply gone out of business. We are all suffering - banking executives within banks which have fouled up for one reason or another cannot expect to be insulated from these financial realities.

At the same time it is absolutely no business of the government to dictate to banks which have not required its assistance and who remain profitable to dictate to these banks how they should remunerate their employees. One of those banks, Barclays, has successfully resisted the government's frankly socialist agenda to try and grab a hold of most of the banking sector and has today announced its results which, whilst a reduction on previous years still remain reasonable and ahead of the market's expectations; it has also, because of the reduction in its profits last years, announced a substantial reduction in the bonuses it plans to pay out - that seems right and proper to me, but it is of course a choice for them to make, not the government.

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