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Bonus culture lives

Robert Peston | 09:00 UK time, Friday, 15 May 2009

A committee of MPs today criticises a remuneration system that gave inappropriate and excessive rewards to hundreds of powerful people.

And before you ask, you wag, they were not holding a mirror up to themselves.

The Treasury Select Committee was - of course - lambasting the City's bonus culture, which it says led to "reckless and excessive risk-taking".

On this occasion, the MPs are only voicing what many British people have thought for months.

Man at RBS entranceBut, strikingly, the Labour-controlled committee does not conclude that the payment of substantial bonuses to top banking executives should be prohibited altogether - not even in the big banks, RBS and Lloyds, where we as taxpayers have huge stakes.

The MPs say: "we believe that there is a strong case for curbing or stopping bonus payments for staff on higher salaries" at Lloyds and RBS.

But in the end they conclude that would not be a good idea because "unduly strict restrictions on bonuses to such staff would result in the banks struggling to recruit and retain talented staff" - which would "be to the detriment of the taxpayer as a major shareholder in both institutions".

If you work at RBS and Lloyds, you should probably send the MPs a thank-you card, not least because the expenses antics of their colleagues in the Commons means that it may once again be safe for you to divulge at parties what you do for a living.

All that said, the MPs have not come down in favour of the status quo when it comes to bankers' pay.

They do want a ban on bonuses being paid to bankers until its clear that the profits generated by those bankers are real and sustainable - which was not the case with many of the notionally colossal profits generated in 2006 and 2007 from trading in toxic investments, such as collateralised debt obligations.

And they urge thorough reform of the "governance" system that sets bankers' pay:
• more involvement of staff and shareholders in setting remuneration for top bankers;
• much more "transparency" about what bankers are paid (so publication not just of the remuneration of those on boards but also of senior bankers below board level);
• and possible overhaul of the role of remuneration consultants, who are accused of making a pernicious contribution to the "upward ratchet of pay of senior executives in the banking sector".

As for the City watchdog, the Financial Services Authority, well the MPs say they're concerned at its "apparent complacency" about the links between the bonus culture and the banking crisis.

The MPs say: "The FSA was extremely slow of the mark in recognising the risk that inappropriate remuneration practices within the banking system could pose to financial stability".

The FSA is miffed by the attack - or at least it is in a press release, though its head honchos are not standing up to be counted on this today.

However, in fairness to the FSA, it did signal many months ago - and before other regulators - that it would impose costly higher capital requirements on banks that fail to adopt a more prudent approach to pay.

It's just that for whatever reason, neither its chairman, Lord Turner, or its chief executive, Hector Sants, have chosen to fulminate from the pulpit on the putative evils of the demon bonus.

There are also a couple of ad hominem attacks. The MPs fear that the former regulator and erstwhile banker, Sir David Walker, may not be the "ideal person to take on the task of reviewing corporate governance arrangements in the banking system" - which is what Sir David is doing for the Treasury.

The insinuation is that Sir David is too much of an insider to shake up the system in the way that's warranted.

And there's a wrist-slapping for Lord Myners, the City minister and erstwhile big cheese in the fund management industry.

The MPs say he could and should have done more to prevent Sir Fred Goodwin receiving that notorious £16.6m pension pot - that screaming manifestation of payments for grotesque failure in the banking industry - on leaving Royal Bank of Scotland last autumn.

Myners always thought of himself as something of a scourge of the financial industry's establishment. So he'll be harrumphing this morning at the MPs' charge that his "City background and naivete as to the public perception of these matters may have led him to place too much trust in the RBS board".

But he probably feels less chastened than would have been the case only a week ago. Because that resonant phrase, "naivete as to the public perception of these matters", is a devastating criticism that would stick to many MPs in relation to their allowances - and probably undermines the moral force of their indictments of others.

Comments

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  • Comment number 1.

    This treasury report is the most important document to be produced in this country for 20 years.
    Congratulations to all the MPs involved. (I don't care what your expenses were, this is a cracking good piece of work).
    And just in time, before Capitalism disappears into a dangerous black hole.
    THE PUBLIC ARE NO LONGER PREPARED TO STAND ASIDE AND WATCH THOSE CITY BOYS ENRICH THEMSELVES AT EVERYONE ELSES EXPENSE.
    The City is just an important service industry, not a banker-boys charity.
    "Well done" to those MPs, your expenses are a microscopic compared to the Citys' excesses.
    This report should bring REAL change...if it doesn't, there will be trouble, and not just economic.

  • Comment number 2.

    The problem here is this mythical belief that there are a few talented individuals in the world who need paying a fortune. Ever noticed that it is the very people on those salaries who continue to preach that myth.

    We have all worked in companies whose "key people" from time to time move on and guess what.....the company survives DAH DAH! People below them fill in until a new person is found. Sometimes....shock horror....the person lower down the rankings doing the fill-in job gets promoted to the post.

    Tell me, if we introduced measures to curb top salaries and these individuals left, where would they all go? The US (giggle), China (giggling louder), Germany (I'm getting hysterical) so I'd better stop before I give myself a hernia.

  • Comment number 3.

    How about an expose on tele-prompt readers who are paid £92,000 a year and populist yobs paid £millions for verbal graffiti, by the Taxpayer? Lets' clean out the whole lot of you.

  • Comment number 4.

    Some years ago and well before the credit crunch I proposed to some banking friends that because there was a serious lack of real risk equity capital in the UK that the banks should be obliged to contribute to a rolling £250m fund managed by independents.

    My view now is that this is even more important to set up than it was and that no bonuses should be paid to anyone within the banking or other elements of the financial services sector until it is.

    Until this happens then it will never be safe for bankers to divulge at parties what they do for a living without getting the response "so nothing useful then"

  • Comment number 5.

    #1. stevewo wrote:

    "THE PUBLIC ARE NO LONGER PREPARED TO STAND ASIDE AND WATCH THOSE CITY BOYS ENRICH THEMSELVES AT EVERYONE ELSES EXPENSE."

    Yes.

    But 'CITY BOYS' also includes the MPs themselves....

    The moral outrage that has now come to the surface, apart from being rather synthetic - created by "Media" does feel in tune with a very deeply held and justifiable resentment at the now huge discrepancies between rich and poor that Gordon Brown or Tony Blair before him have done nothing to diminish.

    The people voted Labour to return to a dose of socialism after the excesses of the Thatcher years. They were seeking a genuinely British and deeply ingrained desire to return to a fairer society. Labour have let them down; and now there is nobody to rescue the people from the Tory excesses. This is why Labour is failing and will fail - it has become Tory-mark-two. The people want a fairer society, but there is no political mechanism to bring this about!

  • Comment number 6.

    A couple of odd things about bankers' bonuses:

    1. Behavioural economic theory indicates that it's not so much the absolute amount of money that acts as the reward, but the relative amount - if I get £5m to your £3m, it's just the same as me getting £500k and you £300k. The 'reward' seems to be the ego boost of being at the top of the tree.

    2. But unfortunately it's also not the amount of money that has led to the risk-taking behaviour. Even if banks had only paid their employees 1/10 of the bonuses, they would still have acted the same way.

    So what to do? A proposal:

    http://www.knowingandmaking.com/2009/05/bonuses-again.html

  • Comment number 7.

    Do we want some high flyer who will spend his time thinking up ways to earn a big bonus.

    What we want is someone who will take a deposit from a saver and lend it to a stable SME for a slightly higher rate of interest than he paid the saver.

    You do not need to be a high earner to be a banker, just an honest person, happy with their lot, like the cashiers you find in any high street bank.

  • Comment number 8.

    Can we have some talented people who actually know how to run banks this time please?
    Not bird brains whose only talent is to feather their own nests at our expense.

  • Comment number 9.

    So the kings of expenses are judging the kings of bonuses.

    This is the problem from now on - why is it OK for MP's to criticise the banking bonus system (which I agree is wrong) - and yet still try to defend their colleagues on excesses.

    As it was pointed out on Radio 4 this morning that most MP's have already lined themselves up with city jobs after their political careers (see Tony Bliar) - so all of this criticism is merely lip service for the public - they don't want to rock the boat they plan to retire in.

    Lies, lies and more lies - that is the only thing the MP's produce.

  • Comment number 10.

    MPs expense excesses are miniscule (except for a few) in comparison to the City. A drop in the ocean. Popular and topical, but of no real economic importance.
    It's just the principle of it, I suppose.
    But MPs minor excesses ARE BEING PAID BACK.
    We'll NEVER get back the hundreds of billions of excesses that City bank staff have put in their pockets (based on supposed profits that never existed).
    It's a shame we can't apply the same principle to the bankers.....OK, you've overdone it, pay it back.....then we wouldn't have a recession and no-one would be losing their jobs and pensions.
    MPs should now be left alone to deal with the real enemy....City greed.

  • Comment number 11.

    "unduly strict restrictions on bonuses to such staff would result in the banks struggling to recruit and retain talented staff" -"
    Having seen the performance of these talented ones maybe the best thing would be be to give them some money to go away. Maybe enough to open a whelk stall and see how they fare with that.
    Do not think we are being had?

  • Comment number 12.

    1,

    If only........

    5,

    Good ole democracy eh? Makes you proud that we go off fighting wars to spread this infection through out humanity doesnt it ;-)

  • Comment number 13.

    Three points:
    1. Where would all these 'talented' individuals go if there were no bonus culture to tempt them?
    2. Why are the brightest and the best necessarily also the greediest?
    3. If the brightest and best are only attracted by money why do politicians go into politics - couldn't be the money, surely?

  • Comment number 14.

    Are these the same talented people that got us into this mess. Surely if paying bonuses encouraged talented people should give us a robust and profitable banking sector. Why then was I, as a taxpayer, asked to bail them out!

  • Comment number 15.

    It must be obvious, even to politians, that any statement originating from parliament at this particular time, will be treated with the comptempt it deserves. Why are these people burying their heads in the sand. This collection of freeloaders must be disposed of as soon as possible. They have brought shame onto the so called democracy. Fortunately for those who have 'Been at it', and unfortunately for those who have not, they must all be lumped together. There is only one honourable course for our unelected leader to take, and that is to go to the country forthwith.... .

  • Comment number 16.

    Micro managing banks is not going to be the answer to makingt hem profitable; no matter how politically acceptable this mantra is today.

    It is up to the FSA to regulate the management and capital of the bank to make sure it is not taking undue risks. beyond that, pay etc is up to the management to decide.

    After all, if not all you will get in the medium term is a bunch of private LLP type banks - just like we had in the 1980's, that can avoid the public regulation. hedge funds do this too of course.

    The key is regulating the capital risks, not the individual bonus.

  • Comment number 17.

    And whilst it's thanks to the Daily Telegraph for exposing the nasties in Parliament, that is mainly a moral issue.
    City greed is dangerous to us all.
    The rest of the world, including the Americans, should read this Treasury report, otherwise we're all going to end up broke every 20 years.

  • Comment number 18.

    What about MPs themselves? I'll admit, any sort of wrist-slapping about banker's bonuses can only be a good thing, but what about MP's expenses? How about a select committee to look after that!

  • Comment number 19.

    Where does this idea that you have to pay mega bucks "to recruit and retain talented staff" come from? Probably the very people benefiting from these outrageous pay packages.

    If we are to believe what we are told it is these 'top banking executives' that have put us in the mess we are current in.

    I agree with an earlier contributer that we need honest people in our banks and not those with a false sense of their own worth and motivated by greed.

    Let's not for get why the banks are there. They are meant to get funds to those who can generate real worth rather than invent ways of feathering their own nests.

  • Comment number 20.

    MPs still can't get away from the fact that they govern the country, if this "bonus culture" was causing trouble, why didn't they do something about it? Perhaps they had their eye off the ball, look at how to pump up their expenses.

    The fact is that the Labour government needed at least one healthy industry, as all the others were shipped abroard. Finance was our last hope, so they eased the rules. And it worked, three times they got voted in, while all this trouble built up.

    And before somebody say it's global. That'a like Al Capone saying that crime is glodal and he is not to blame. It only proves that other countries politicians are as bad as ours.

  • Comment number 21.

    The amusing part of this is the way that the high salaries in the city have been used to push up salaries for everyone else. How many times have we heard the mantra from the government that 'salaries for civil servants and top government employees must be competitive' (Brownspeak for 'the bankers are still paid more than us').
    There was this terrible fear that a whole generation of future politicos was never going to turn up, having been seduced by large salaries in the city. Politics was turned into a career, graduates spent their whole lives preparing for it and have no experience of anything else. Previous generations of politicians tended to have rather more experience of the real world, having worked in 'real' business instead of imaginary dot.com startups and marketing companies. They had fought in wars and experienced life. Getting a degree in a socially acceptable subject and working in a policy department at Whitehall before being parachuted into a safe seat is no preparation for politics.
    'We're worth more than civil servants' they cried, 'pay us as you would directors of private sector companies' they wailed, 'for we are the board directors of UK PLC'.

    Well they got their wish, we treated them as such. Now they should be judged as such, and those found wanting, or worse, fiddling the books, should also be treated as those in the private sector and immediately sacked or prosecuted.

  • Comment number 22.

    It is a truism that if you reward people for taking risks then they will keep taking risks. I have never understood why there ever was a `bonus culture'. To my mind you do your job well, you get paid; you do your job badly you get the sack.

    Back in the early Nineties manufacturing industry in the UK was moving away from production bonuses, piece-work and the like to a standard salary system in which each task was done right first time. The view was that under bonus schemes what got measured got done and nothing else. So, if the bonus scheme rewarded quantity then quantity is what you got: how much of that quantity was useable was a different matter.

    The difficulty with most bonus systems is that they impose behavioural values on the participants. Properly constructed and managed these can be positive but usually they generate negative responses. During my working life I have closed down bonus scemes which had become corrupt. In one case the manager who produced it with a huge fanfare within the business could not tell me how he calculated it. All it achieved was destructive divisions within the workforce; maybe that was his objective, I don't know.

    I hope we can now move on from the bonus and expenses culture as they induce the idea that there is something to be had for nothing. Sadly, in this life nothing is for nothing. We all have to work to pay our bills, this adds value to society in general, which is the way it should be if we want a fairer society.

    One other thing that will also contribute to a fairer society is to elevate skill above ambition. During the recent boom we needed skilled and able bankers to direct our affairs; all we got were thrusting, ambitious, dynamic executives who hadn't got a clue what their richly bonussed risk-takers were up to.

    Looking back at it in this light, the bust was inevitable.

  • Comment number 23.

    An excellent set of contributions that rightly express indignation about the appalling practices of the recent past. Public ownership of a substantial part of the banking industry is the best way to achieve a transformation of our financial institutions but is there a political party that will implement it? Hopefully the 100 or so Labour MP's likely to survive the next general election will start to build a party for the majority of ordinary bonus deprived people!

  • Comment number 24.

    Whether paid in the form of a bonus or an annual salary, the telephone number sized remuneration packages that people of fairly modest skills get in the city are a sign of market failure. It might take a couple of years to acquire the necessary domain knowledge, but I don't think it should be that hard to retrain some unemployed brickies as bankers. The fact that the banks don't do this and reduce their staff costs shows that the invisible hand isn't working properly and that some kind of cartel is being operated for the benefit of the current insiders.

  • Comment number 25.

    Gross incompetence across banking and government.

    Let us not forget one of the prime movers in creating the property price bubble and the rapaciousness of institutions demanding high returns from the banks (and other FTSE companies).

    1997 Gordon decided to remove tax relief on pensions, thereby generating huge fund deficits.

    This single raid destabilised the pension funds, led to individuals to treat property as their pensions and caused fund managers to press for greater returns on their investments.

    A beautiful circle as the banks were keen to lend to willing property speculators. A perfect storm. Profits all round.

    Everything costs in this world, all actions have consequences. If you have not noticed the consequences of an action then look harder!

  • Comment number 26.

    #2 mar39241

    You have just said it all and cheered me up for once in these miserable days.
    The only surprise is that BROWN didnt give them tax free status on the bonuses like he did with MP's expenses (whilst bringing in draconian taxes for the little people)

    I run a business and I wouldnt employ ANY of these so called Captains of Industry, Knighthoods and all, ethics and an honest attitude is our key recruitment criteria. Most bankers have neither.

    But, with their "Vast" expierience perhaps there is a life outside banking and with unfettered and tax free bonus rewards, they might become politicians.

  • Comment number 27.

    City greed? This is ludicrous, it does not mean anything. What you have is people greed! People who thought it was their right to have a mortgage even if they did not have the means to repay, the right to have the latest plasma TV, even if they could not afford it, pension funds requiring excessive return for example and and yes some people in banks thinking they could exploit this greed to make a lot money for themselves on the back on this. Stop crying, this is pathetic, you are all greedy and responsible!

  • Comment number 28.

    Another fudge by government.

    There was no business reason to pay these bonuses in the past as the rewards given in no way reflected business profits nor provided a quality product. Neither can an argument be made that the business performed by these financial "wizards" constituted sound financial principles or regulatory practices.

    Therefore the payments should be looked at as gifts in the minimum and bribes at the worst case.

    In my opinion the government should slap a retorical 90% tax on all bonuses paid over and above the average banker clerks wages - regardless of the where they are domiciled.

    Failure of our government to stop this financial failure was incompetance at the least.

    Failure to claw back bonus money can only be looked at as collusion in the banking system - Tony Blair is now a banker surprise surprise.

  • Comment number 29.

    Robert,

    The committee also gave you a clean bill of health to carry on reporting and exposing the issues with banks and they opposed financial restriction notices on the media. Your editor said

    " The public has an absolute right to know about weaknesses and structural problems at Britain's banks. Why shouldn't the average person have access to the same information as those in the know? How many senior bankers invested in Northern Rock in the months before its nationalisation? Not very many, I expect."

    So, why is it that the IMF says the UK banks need 125-250bn dollars of new capital ? What are the FSA stress test results? What are the transitional liquidity tests revealing?

    Dont go wobbly now, Robert.

  • Comment number 30.

    Nothing can be more certain than the fact that once the Government starts lumbering in with its size 10s and starts micromanaging banks (or any other large businesses), disaster is inevitable. The ONLY viable solution is a proper regulatory structure, rigidly enforced, and then letting the banks operate as they see fit within that structure.

    This Treasury Select Committee report is what the Americans like to call "Monday morning quarterbacking" - in other words displaying a large amount of posturing criticism with the benefit of hindsight. Where was the criticism from the TSC during the past four years? Perhaps this can partly be explained by the fact that most members of the committee have scant experience or understanding of banking and finance...

    As joeplumber (#7) pointed out, the job of retail banking is not actually very complicated, and is predicated on risk management of the loans that a bank is making with its depositors' money. The problems all started when senior management at the banks grew tired of just making boring margins on lending borrowed money, and sought out new and exciting ways to gamble.

    The job of governments and regulators at that time should have been to curb the bankers' ambitions. They should have excluded retail banks from most of the riskier ways of playing with money, and enforced strict capital adequacy requirements to ensure that every bank had enough in reserve to more than cover any potential trading losses.

    History shows that there is no better way to maximise wealth and productivity in any society than a properly-functioning and properly-regulated free market, operating under the rules of capitalism. The main reason that it went so wrong this time was that regulation of finance was pared back to ludicrously lax levels. Had all the boundaries and checks & balances been properly in place in the early 2000s (something which the *ahem* venerable TSC could and should have seen long ago), the likelihood is that UK banks would have weathered the storm extremely well.

    It goes without saying that global regulatory environments, most notably in the US, were similarly lax and insufficient. What needs to happen is that governments across the developed world must reset the regulatory framework, then step back and let the banks operate as they see fit within these much tighter constraints.

  • Comment number 31.

    Banking at its basics is a fairly simple industry - the people running it haven't needed to be clever - until products were derived that they should have understood before adopting them but they didn't. Bank directors along with the Regulatory body and members of the Bank of England should be charged with gross incompetence - but we are dealing with people who are used to earning a fortune for doing a straightforward job and gross incompetence is not seen to be a crime. They will go on to other directorships and peerages and laugh at the man in the street who puts equal effort in and works hard and competently to the best of his ability for a small fraction of their pay.

  • Comment number 32.

    The legacy of Thatcher lives on. It's as though she never left office. Smash up our manufacturing base and give everybody jobs in the 'service' and 'financial' sectors. The cheek of it all is that these companies speak of financial 'products' and 'tools' in a pathetic attempt to convince everyone that they're actually making and supplying something useful, when all along they were just new ways of pushing fake numbers around on a spreadsheet. They then rewarded themselves with vast sums for creating fake money out of nothing, and now that their scams have been exposed we're all expected to bail them out.

    What really sticks in the craw is that we were told all along that these were fabulously talented, superhuman people, who could and would simply flutter away to another country and our economy would fall flat on its face unless we kept them in Ferraris and city penthouses. We were effectively being held to ransom! I never, ever bought this ridiculous myth, and I cannot believe that so many responsible people were suckered into believing that vast bonuses were the only way to go. OF course they're going to take risks!! Surely once you've had a 5 million pound bonus, and you've got enough to retire on, you're really not going to care too much about the long-term future of any company. A fair, decent salary for an honest day's work - this is the only policy to ensure a longer-term, more pragmatic view. But that concept was another victim of Thatcherist free-marketeering.

  • Comment number 33.

    I think the right honorable gentlemen will find bonuses were well within the rules...

  • Comment number 34.

    #12. JavaMan1984 wrote:

    "Good ole democracy eh? Makes you proud that we go off fighting wars to spread this infection through out humanity doesn't it ;-)"

    Consider:
    Are you defending the status quo by calling it democracy?

    and

    Are you falling into the very trap that is set by the establishment to protect itself by using the "D" word to describe its arrogance and privilege?

    These are the same arguments used by every tin-pot dictator throughout the World when defending the indefensible! There are ethics and morality that stand outside and above the 'D' word.

    The gross and manifest transgressions of the Bankers, MPs and all of the other who reckon they are worth paying so much much more that their employees or then man or women in the street. They use the media that they own to continue the domination and exploitation of the poor and huddles masses and every so often they will get a good kicking that they 'richly'(!) deserve! As I have just written on Nick Robinson's blog where are the Levellers (not the band!) why you need them!

  • Comment number 35.

    The irony here is startling, to such an extent that the message is lost.

    The bonus culture needs changing, or at least the calculations regarding bonuses need rejigging to take a longer term view. It isn't rocket science, noone should be paid a performance based bonus on profits temporarily inflated to manipulate a higher bonus.

    However, pot kettle black springs to mind. This goes to the root of the damage caused by M.P's expenses furore, and the fundamental hypocrisy within M.P's/the system. How can we look at other nations and call foul play when our Parliament is, in effect, full of corruption. Lets not play it down, it is corruption- the tax payer should not be paying £2,500 towards an M.P's sound system (only half the cost you understand), let alone bear the cost of clearing out a moat.

    Forgive me but isn't this what their salary is for? If they aren't paid enough then increase the wage but for too long it appears they too have been claiming pseudo bonuses and now they've been caught with their hands in the till.

  • Comment number 36.

    Re 27 Darksurfer.

    Yes, in a way you are right....everyone is naturally greedy and none of us would have refused those bonuses.
    But with regard to people being greedy with mortgages....bonuses are paid and interest is piled up on every mortgage loan issued....and that was the real driver of the wreck, in the UK and USA.
    Those who could not afford mortgages should never have been given them, but then the bankers wouldn't have got so rich, would they?
    In my view, City greed is still the culprit.
    90% of the bloggers seem to agree.

  • Comment number 37.

    I was a trader for a large bank in the city. But before you get all uppity you should be thanking me for helping to push down the price of oil last year as we were big sellers. No-one complains when you short something like oil.

    We realised a long time ago that markets (and our whole economy these days) works on the greater fool theory. That is, the economy is a big pyramid scheme that relies on a 'greater fool' to come in below you and buy you out for a higher price. It relies on increasing levels of spending and giving birth. Credit was the drug and the banks were the pushers. Everyone got higher and higher and the banks pushed the harder stuff. Then someone called the cops and the fun stopped.

    Anyway, I've left the UK for a sunnier climate and I continue to trade the markets but for myself now. We don't seem to have learned the lesson here so I'll play along but at least I'm directly enriching myself instead of my boss. Good luck to you all and God help us.

  • Comment number 38.

    Stevewo would like us to take our eyes off the ball. Yes the banks have failed us, but the failure might not have happened if Government had been coordinated. Blair pretended to be a nice sort of guy whilst not condemning the free-for-all expenses culture. (Don't tell me he did not know what was going on. I wonder what expenses he claimed?) He cast a blind eye in Brown's direction whilst the cunning old scot brought in old labour policies by stealth. The house price boom helped Brown with his grand money-wasting plans and this should never have been condoned by Blair. The resulting bust was the main trigger of the bank failures. Yes, the banks should have been instinctively cautious about the country's economic stability under an old labour administration and should not have taken the sort of risks they did.

  • Comment number 39.


    Let's see if I've got this correct.

    For years and years, banks worked well without multimillionaire salaries and bonuses.
    Now they work fantastically well with multimillionaire salaries and bonuses? and there has been no banking crisis? and we can't let these genius-types leave for somewhere else because they're doing such a great job?

    Sorry, I'm just a thick teacher who can't follow this high-level logic. Maybe if I had a huge bonus I might understand?

  • Comment number 40.

    I dont know if its just me but could some one please do something about the totally out of touch with reality and humanity Angela Knight of the British Bankers Association.

    She has just appeared again on the news proving that she is clueless about the dire low level to which public esteem for banks has sunk. Angela either needs some serious training in communication and awareness or to get out of the job and let someone in who can set about rebuilding confidence.

    Mind with the majority of our own Financial Political and other significant elite firmly stuck with their feet in the trough finding some one with the understanding of the sheer contempt these now very much ex-pillars of society are now held is not going to be easy problem is they are the virtually alone in not seeing it.

    We are not at the end of this either there are many issues of the entire way in which we manage our public sector and run our tax affairs. A tax system which creates a need to find alternatives to income rather than us having a system that clearly demonstrates that the more we pay in tax the better of we are not a rock and roll banding where you get a better job and find your worse off and we need an end to a system that pins the poor into permanent poverty.

    The Bankers and their approach to fiscal reward have lead us into this mess can not one of them considers the honourable route and decide to lead us out by example les me first and after you would make the world of difference

  • Comment number 41.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 42.

    #36

    Yeah these horrible bankers who went with a gun to force helpless people to accept a mortgage against their will...how cruel!

    What a pile of rubbish, time for people to take their responsabilties! Greed is the source of this mess and it is EVERYWHERE!

  • Comment number 43.

    It seems to me that a solution for the bonus culture is for the institutions, whatever they may be, to take some basic responsibility.
    It appears that by using the usual excuse of attracting talent etc we have arrived at the rather perverse position where the employee makes the demands not the institution. Along the lines of "give me this or I'll go elsewhere because I'm so super..."

    Would it not be a simple matter to make it a point of any contract that bonuses are simply not available for, say 5 years. If any given individual doesn't like that then tough!

    It should be a matter of policy not a subject for negotiation.
    That might focus the mind to ensure that, whoever, sticks around and acts more appropriately.

    If these high flyers continue to believe that they are somehow more worthy than the public at large then we will go nowhere fast.

    However for those at the very top this probably wouldn't work because of some many vested interests.
    This is a significant part of the problem, the old boys network, an arrogant contempt for the public at large. I often feel that it is not a case of naivete of the public but a deliberate policy of if not outright lying then at best being economical with the truth.
    As with MP's who seem to be making an awful lot of "mistakes" recently, what I believe to be the only thing that will calm public anger is criminal investigations into the activities of bankers (and MP's!).
    Otherwise we will see nothing more than crocodile tears and we will be back here in short order.

  • Comment number 44.

    Re 38 oldsandbanker.

    I agree with you entirely about Blair....he walked away....but in truth he must have known what was going on.
    And Browns' "grandstanding"...exactly.
    But my point is that, in my view, this Treasury report is far more important than MPs expenses, and the expenses scandal is largely being dealt with.
    We all know that MPs are far from being saints (Gods Cable and Field excepted).

    Re 37 Roughashlar.

    Excellent post.
    The "greater fool" theory....that's spot on.
    I see you are now trading for yourself....that's good....YOU are taking the risk.

    Re 11 LittleRootieTootie.

    "give them some money to go away and open a whelk stall, and see how they get on". Yes, indeed.
    Oh yes, we are being had.
    I used to day-trade shares...it's like taking candy from a baby when the market's in a good mood.



  • Comment number 45.

    Knee jerk reaction and "horse, bolted, stable door" - in a few years time when all of this has died down and the media (and therefore the government who seem to react to the media most of the time!) have another story (perhaps it will be cat flu that will wipe us all out) the bonus' will creep back up.

    Some of the banks have already started to make 'paper' profits - give it a few years and you will see that most will be profitable again and then bonus' will be paid out again as they compete to be the most profitable. As for where the 'talent' goes - well IF I was a banker say with RBS and Barclays were paying out bigger salaries and a bigger bonus then guess where I will be heading - unless of course RBS up my salary and bonus to keep me, which they probably would as I would expect to be generating more 'profit' than I cost (however real that is) - see the cycle? Can't believe it wont be repeated...

  • Comment number 46.

    Well you can see how the banks got away with it and how we were told we were going to bail them out and they are still giving bonus while Britian burns PMs who fleece the people they serve and bankers who fleece everyone come from the same stock but Britain has never taken a stand to stop this as to many people either did not believe that it was happening or did not know or were with them and into doing it themselves they idea that this sort of thing does not happen in Britain has just die a death and thank god for that along with the stiff upper lip and fighting for Queen and country. Britian need this and if it changes what has gone before well not before time. No one likes to pay taxes but when some are being taxed to death while others can hide and keep their tax because they make the laws to suit themselves and those like them and the rest can go to help a small island with poverty stricken people whom the media went along blaming them for the way this country is when its nothing to do with them but those with money and power, so it was only a matter of time before the stink would rise and like a boil its now open and time for change, Democracy is PEOPLE POWER. We can not go about telling others that they are wrong while we and only we are right. Now see if the Govenment does not work for us as they will be watched, also there will be a law brought in for privacy of the rich and famous or Govenment now and this must not be allowed, as this will open us up to Mafia style ruling look at how Blair love Balasconi(Papa) bewared

  • Comment number 47.

    # 37 - Excellent - "We realised a long time ago that markets (and our whole economy these days) works on the greater fool theory. That is, the economy is a big pyramid scheme that relies on a 'greater fool' to come in below you and buy you out for a higher price. It relies on increasing levels of spending and giving birth. Credit was the drug and the banks were the pushers. Everyone got higher and higher and the banks pushed the harder stuff. Then someone called the cops and the fun stopped."

    The US & UK governments were (are) living off the back of all this. Its no coincidence that we had all the paddy about 'Fred the Shred' closely followed by the MPs 'fill yer boots with expenses instead of a pay rise' affair. Some people have clearly wised up to the scam.

    But it reminds me of comments made after WWII by some Germans that the only time they felt real anger toward the Nazis, wasn't when they were doing well and people were 'disappearing', but like that anger between gangsters when they were losing the war and all their 'wealth'.

    Some of the anger over MPs and others at the moment (and you can see it in the faces of the audience on 'question time' and similar) is from essentially greedy persons whose buy-to-let 'empires' have collapsed and whose inflated house prices have fallen. This is gangsters turning on each other as they are indicted and forced to confront the collapse of all their dreams of Ponzi money.

  • Comment number 48.

    I do not buy the notion that there is such a limited pool of talent to run banks or anything else that demands such large bonus schemes or for that matter basic pay.
    The truth is that most have risen by luck over those with similar capabilities. Once through a particular ceiling they have joined the limited number of people who make up the Boards of our FTSE 100/250 Companies who will decide the next members of that club.

    Where is the competition for these top posts such as applies further down the management chain.

    Any organisation that uses bonuses to entice management from elsewhere can be accused of not being good or clever enough to have and develop its own staff for the top.

    There is much in common with the Premiership Football league. Astronomical pay deals for players do not seem to give a model for financial success comparable with say Walmart.

  • Comment number 49.

    Sadly [hmmmmm] democracy is dead. In 5 years there will be so few people voting that the political system as it stands will be irrelevant. Despite what mps will claim about the populations right to not vote, the truth is that they will not have a mandate to govern - whoever wins. Its time for the queen to disolve parliament and for us to start again.

  • Comment number 50.

    Creating fake money by churning deals to create bonuses. That was the scam at investment banks during the boom years. Now western governments are creating even more fake money to bail them out with. When will all the 'fakery' end?

  • Comment number 51.

    Re 42 Darksurfer.

    "greed is everywhere"....can't argue with that.
    But the "gun", as you put it, was the runaway market (created by bankers).
    What were young people supposed to do?
    Wait until starter homes were a million pounds each?....no.
    They were being forced into a market that was beyond their reach, by the financial industry.
    And while we're talking of financial recklessness, we shouldn't forget the Bush administration and Wall Street, who managed to ruin the lives of millions of poor people, (not financial experts), who were given mortgages at 1%, then thrown out 3 years later when those mortgages went to 4%. A recipe for disaster. (Wreckage duly passed on to us). We don't need any more of that.
    I think this Treasury report is excellent.
    My view, not yours.
    Isn't the internet great?.....Instant public opinion.

  • Comment number 52.

    I guess it was outside the Treasury Select Committee's remit, or perhaps not a politically suitable idea, but I see no mention of one of the roots of the current crisis, namely both Carter's and Clinton's interfering with the mortgage industry in the US. This largely contributed to the sub-prime problem, although the financial institutions subsequently amplified the probelm thorugh their derivatives activities. But at least we could look at the root cause, not just some of the later symptoms, especially since there is every indication of 'social banking' still being on the agenda.

  • Comment number 53.

    "unduly strict restrictions on bonuses to such staff would result in the banks struggling to recruit and retain talented staff"

    I would suggest that the system has proved recently that in this way we do NOT get talented staff. Perhaps their best skills are in designing their pay packages to safeguard total failure?

    The annual bonus mentality removes incentive for a chief exec to plan a corporation's future; their interest is in short-term gain.

    Having said that, it is not only these chief execs to blame, the boards of such companies have agreed such arrangements and they need to take the major part of the blame when they get caught out by these fly-operators!

  • Comment number 54.

    Smoke & Mirrors is the phrase I would use to describe these so-called Finance Whiz Kids with their huge bonus payments! Put quite simply it does not take a detailed investigation to tell the public that what we had in fact was a bunch of Bookies risking and betting punters (public) money but keeping their fingers crossed no-one twigged. I bet you there are a few real life bookies who could only dream of this set-up. But hey-ho we'll move and forget all this nasty stuff!

  • Comment number 55.

    Talented people getting paid a lot of money, what a load of rubbish!

    Most people who have made the world a better place have ended at best in middle class comfort and as often in poverty, possibly because they were not driven by greed. It has nothing to do with capitalism, socialism, gallathumpianism or any other ism. Whatever system of society we live in, humans have a tendency to greed and many of the greediest end up with a mountain of money in spite of a total absence of talent.

  • Comment number 56.

    #51. stevewo wrote:

    "Isn't the internet great?.....Instant public opinion."

    But the "public" in this case consists of a self-selecting group of people who are generally ill-informed of the issues, unusually right-wing and reactionary and, above all, want the world to know their opinions, whether or not they are relevant to the subject under discussion.

    Which is not to say that their views should not be aired or heard, but to suggest that they represent the general public is incorrect.

  • Comment number 57.

    BBC Breaking News!!!

    "The number of homes repossessed in the UK rose to 12,800 in the first three months of the year, the Council of Mortgage Lenders (CML) has said"

    Other top stories this Friday Lunchtime!!

    We're raking it in say lawyers!
    Not as much as we are say judges!
    It's a guinea_a_minute say auctioneers!
    Laughing all the way to the bank - Letting agent!
    Recession over!
    OOOps we've been rumbled say MPS!
    Another soldier killed in Afghanistan - his parents have been informed.
    Sheffield mum has triplets!



    Repossessions, insolvencies, liquidiations, court orders evictions, unemployment all up and nobody came.

    GC

  • Comment number 58.

    #51

    More and more ridiculous!!!

    If people cannot afford the price of their house they just do not buy, simple, no rocket science!!! And by the way if people do not buy why should the house price go up?

    People seem to think that buying a house is part of their human rights. It is NOT. You can buy if you can afford. Full stop.

    Banks provided the mean for people to act recklessly, and in this sense they have been reckless too, but they did NOT create the reckless people.

    Now it is payback time for everybody!

  • Comment number 59.

    This is just not good enough, Robert.

    Are we, the people, going to let ourselves continue to be subject to this extra onerous 'tax' - the tax that the money men, and the City of London, effectively levy on us because of a. our obligatory use of the money system, and b. their cartel control of it (via the FSA cosy club of bankers), which forces up the price of using it?

    Nobody seems to have made any link between the emergence of the UK (Ok, mostly London) as a so-called financial centre, and the UK's decline in manufacturing and technological industries. But with a bit of perspective now, surely it's there for all to see?

    I very much hope that one really good thing will come out of the MP's expenses debacle.

    Now they themselves are having to declare everything to the outside world, and finally adopt the sort of standards (of "living in the real world") that the rest of us know well, that they will now be thinking... why shouldn't this be the touch-stone for everyone....... including bankers.

    Once again the question has to be asked....

    "What downside is there for the people of the UK, if we forced all our banks, and all financial intermediaries to disclose everything into the public domain (.... just excepting people's names) i.e. management accounts, sizes of loans, sizes of deposits, salaries, bonus payments.... everything".

    This would have to lead to the most efficient allocation of capital on earth, surely?!

    Robert....., anyone....., please advise of any flaw in this argument!


  • Comment number 60.

    #2. At 09:24am on 15 May 2009, mar39241 wrote:

    "The problem here is this mythical belief that there are a few talented individuals in the world who need paying a fortune."

    Aboutely agreed!

    Leaving aside spin and self-agrandisement, is there any empirical evidence that proves that excessively paid executives do actally deliver better outcomes for cutomers or shareholders?

    It seems to me that they act more arrogantly, egotistically and, very often, more in their self-interest. That is, they tend to 'serve' themselves.

    Perhaps those who have a little more modesty and therefore do not hold out for such huge rewards are, in fact, more psychologically suited to 'serve' the banks, the shareholders and the customers.

    In my view the idea that we need to pay huge amounts of money to get the best people is worse than a myth, it's an out and out con, both in the private and public sectors.

    What you really need to do is to monitor and manage the performance of the people you put into post - not throw wads of mnoney at them!

  • Comment number 61.

    I think there is a much more fundamental problem with modern capitalism than just a few greedy and foolish people. The fundamental problem is that the capital is no longer in the hands of capitalists. Rather it is in hands of managers who use our savings and pensions and now taxes to speculate. When they win they take the benefits, when they lose society takes the losses.
    Sure there are people out there risking there own money and building there own companies but in truth they are just a side show. You could take all the accumulated wealth of Alan Sugar, Richard Branson and all the dragons in the dragon den and it would not pay a quarter of the loss incured by RBS just last year.
    This is a progresive process so this problem will get worse. As time goes by society accumulates more and more capital. So the amount any individual can add to this total reduces in relative terms as time goes on.
    This is why in 1907 the banker J P Morgan could resolve a similar banking crisis with the help of a few rich friends and a minor intervention by the US treasury secretary.
    By the 1930s it could only be resolved by major intervention by US goverment,
    Today it requires the cooperation of all the worlds major goverments.

    In a hundred years time our belief in the so called "Market economy" will seem as unbelievable as believing in the "Divine right of kings".

  • Comment number 62.

    The practice of paying bonuses in any industry should not be prohibited. The problem with the financial services industry is that these bonuses got out of hand in their magnitude and quite often were not based upon actual tangible profits i.e., where the "cash is in the bag", but on mark-to-market profits on positions that mature sometime in the future and thus can easily slide into loss when prices change.

    It is obviously up to the owners(shareholders) of a business how the bonus system will work but just from a purely business stand-point paying bonuses based upon intangible profits is ludicrous. Bonuses paid on positions which have not crystalised is tantamount to taking out a 100% mortgage and then slipping into a negative equity situation.

    Surely any bonus payments on such MTM profits have to be deferred until such times as those positions are unwound or mature so that the actual cash profit can be properly accounted for and deferred bonus payments adjusted according to the actual outcome?

  • Comment number 63.

    Just a few thoughts - poster #1 - agreed, everyone suffers when the banking industry contracts, as we have recently seen. Everyone also benefits when the banking industry works at its best, and as such the bankers aren't enriching themselves at anyone else's expense. They may be paid a lot of money, but if you think it's all so easy why not apply for a job there?
    Poster #2 - I imagine the bankers would saunter off to Dubai (0% tax) or Singapore (0% tax) or Hong Kong (15% tax) where they could ply their trade making vast fortunes and NOT SUPPORTING our economy at all. Not only would we lose their vast tax revenues (assuming they don't dodge this through fiddles) we also lose out with a lower demand for goods and services as the wealthy flee the country.

    I am not saying every banker deserves millions, and certainly reform is required, but everyone seems to forget what a vast contribution (both directly and indirectly) that the banking sector makes to this countries' GDP.

  • Comment number 64.

    Much has been made of MP's expenses I would be extremely interested to know how much MP's claim on travel expenses especially from second home or in the case of London MP's to Parliament since no other taxpayer can claim for expenses travelling to and from home regular place of employment. Also it would interesting to know the mileage rate MP's get fo using their own cars compared to all other government employees.

  • Comment number 65.

    Fair point, daksurfer.
    True to say that the property market can sometimes be completely mental.

    Re 57 rbs-temp.
    Yes, we are not a fair cross-section of the public, but at least we are interested.
    Most people in Britain are more concerned with "Katie and Peters'" relationship than they are with the monstrous debt that has been placed on their children and grand-children.
    Perhaps that's the problem in this country....people don't care enough, and that allows the "establishment" to "get away with murder".
    At least you get on here and give your views, and haven't got your head stuck in a "celeb" magazine.

  • Comment number 66.

    Let me give you a real life example of how the bonus culture worked (works) in a bank. Gas needs to be stored and salt caverns make good storage. So a 'project originator' finds someone who has a salt cavern and someone who has a natural gas supply. He puts the transaction together and leverages it up and hedges the future gas flows using AN ARTIFICAL FORWARD CURVE. These are future prices created by momentum traders who are buying and selling to make profits out of nothing, simply by risking the bank's balance sheet.

    Of course the 'originator' banker has done a good thing here because this project probably wouldn't have happened without them. However, the banker walks away that year with a fat bonus BECAUSE ALL THE PROFITS ARE REALISED UP FRONT. In a few years time that project will probably fail because all the growth and upside in the project was taken by the bank and realised upfront. Don't know if this will make sense but this sort of thing is what has been happening everywhere.

    Banks have financed vastly over-leveraged projects but have realised the future profits today! We have borrowed from the future and have spent it already. It's going to take years and years for inflation to catch up to make things worth what they were originally valued at. That's going to happen now by a simple devaluation of the currency. As I said earlier, God help us all!!! This has never happened before in the scale it's been happening and at the speed of the global world. Don't bother reading about the great depression. This is very different and potentially even worse than back then.

    I have a farm in South Africa where I'm living now and enjoying the simple life where things have real value again. I fear for what is still to come because I can see the markets getting divorced again from the real world at an even faster pace now i.e. this recent rally. It's almost like the financial sector needs to get back to where we were to make it all alright again. That's only going to make it worse because commodities are rising rapidly again whereas people are not going to find jobs and earn real incomes for a while again. This divorce between the real world and the market is going to cause another panic and only when we've purged ourselves of the artificial markets we've created will we be back on track.

    A very good (esoteric Mason) friend of mine suggested that when one age moves into the next there is a great battle between the visionaries of the new age (call it Aquarius) and the entrenched of the old age (Pisces). I wrote about all of this last year at http://tradeforce.blogspot.com


  • Comment number 67.

    Example:

    I know - i'll re-mortgage my business this year, and show a healthy £1,000,000 "profit" through the proceeds.

    In 10 years time, someone might notice that we still owe the bank £1,000,000 but i'll have spent the bonus by then (or possibly retired on a massive pension).

    how did anyone think that was a good idea?

  • Comment number 68.

    #5

    Time to take the blinkers off, forget about the two main political party's, there are other party's to vote for the public have been brain washed by the media into thinking they must vote labour or Tory these party's have between them ruined the UK's economy.

    If enough people vote for something other than their own selfish interests things might change.

  • Comment number 69.

    Criticism = A most terrible punishment, which exonerates the recipient from any further inconveniences.

    Severe criticism = How awful!

    Suspension = A short, usually paid holiday, taken while things blow over.

    Naivety = Current absence of evidence.

    Election = Government event.

  • Comment number 70.

    @59 - I very much doubt that full public disclosure of all that would help at all - heard of information overload? I would very much doubt that any one would be able to understand it, there would be competitive issues (although given the degree of public ownership in many of the banks perhaps at present that argument is pretty weak) but mainly it just wouldn't help. A lot of information is given to the market and market analysts at present as part of the plc requirements and that obviously didn't help anyone - going through the fine detail is not going to help you I'm afraid (put it this way - if the people who have lived and breathed these numbers for 20 years are struggling to get to grips with it then the general public have no chance)

  • Comment number 71.

    The story goes that when a new worker starts in the chocolate factory, they are given free reign to eat as much product as they wish. The thought being, of course, that the sickness of the first day will prevent a repeat and any temptation to 'handle the goods' will be lost.

    Evidently someone thought this might work in the city, but they never get sick of it. They'll just spend more and more time thinking of ways to shave chocolate off those bars to fill their greed. The machine will be turned up to max, as they take 1 bar in 10, then one in 5, 1 in 3.... It becomes a full time occupation just to feed this damn machine the ingredients... but the workers will point to the marginal increase in bars going out from the warehouse as justification

    Wages should be restricted. Encouraging employees to seek reward by siphoning off the goods to their own back pocket will lead to a poorer returns for the consumer. If banks want reward the highest performers why not appeal to something else in the human mind: how about praise, recognition, a sense of purpose, a good work environment? It is fundamentally dangerous to reward your staff with the stuff people have given you to trust at their own discretion. It's like kids guarding the sweet-shop, and then being told to "take what you think is reasonable" for the good job they did.

  • Comment number 72.

    I really don't believe this system within which we live.
    It appears that all bar the many who actually work for a living wage seems to think the system as it stands is both equitable to all, fair, and not worth changing.
    Ask anyone who does not earn multi-million dollar bonuses, or no bonus at all (as most employees do) if any of these remuneration packages are fair or right. I am certain the vast majority will deem them to be unjustifiable.
    MP's have shown themselves en-mass to be untrustworthy and not capable of seeing something which is to their benefit but is fundamentally wrong. What is worse, they knew it was wrong, but worked it immorally for maximum personal gain.
    This is exactly what bankers, executives, traders, and the likes do. The remuneration committees that set their pay and rewards are their because the executives they are assessing have picked them. The fund managers who wield the weight at vote time are not interested in rocking the boat, as their rewards are equally excessive for the effort they put in. It is too easy to ride the train to the next bonus.

    So, our elected MP's failed to identify and fix what is blatantly wrong on 2 counts (executive remuneration and MP's expenses) and they expect us to allow them to continue not fixing it.

    As many have queried in recent weeks, what planet do our representatives live on ?

    I assure you (and this is not an inappropriate caution) that revolutions have started for less than this.

    Over 25K 1995-2005 went into my L&G pension. These remuneration packages are supposed to be the route to good returns for investment funds such as mine, yet, even before Lehmans went belly up my pension fund was worth about 2K less than went in.

    Clearly the best talent are not worth employing.

  • Comment number 73.

    perhaps a spell of time in prison would be appropriate for the guilty bankers, or even MP's for that matter. The public, especially those whose lives have been blighted by the criminal and corrupt actions of those employed in every UK bank, deserve compensation, or at least the possibility of someone prosecuting every bank employee that has had contact with 'toxic assets'. Wish we had class action lawsuits in the UK.

    if you, I or anyone who runs a business takes money, that is not theirs and gambles with it (as in the case of the bankers) or spends it on themselves, we would have the police round, possibly the fraud squad, HM Revenue and Customs etc and probably followed by a spell 'inside'.

    So why shouldn't Bankers lose their jobs or repay their losses and not just MP's?

    Mortgages wrapped up as CDO's or bonds is nothing. Look behind the mortgages and credit cards. See if their owners actually exist - or the properties, cars and yachts the money was lent against, here in theUK or overseas.

    Bankers, whether investment managers, brokers, senior bankers including the likes of John Varley and the Goodwins of this world need to be brought to heel once and for all.

    Send SOCA in and open ALL the books of ALL the BANKS trading in the UK.
    Quite sure it will be amazing what would be found.

    It would be brilliant for the Book Industry, think of all the books
    that we could look forward to reading, to see if the fiction we've already been sold, matches the facts when investigated.

    We the public deserve the truth once and for all.

  • Comment number 74.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 75.

    the posts highlighting this fallacy of a mass exodus of "talented" leaders are spot on. The UK, as with most other countries, is crammed with highly capable individuals whose primary reason for the job they are in is not money, but other motivators such as status, job satisfaction, enjoyment, the challenge and even the work/life balance they can have. Having worked for one of the big 5 (now 4) banks as well as a leading international law firm I have direct experience of incredibly mediocre and untalented senior managers/executives who have achieved their position not on talent but on fierce ambition, often driven purely by the desire for financial rewards. Decisions made by such individuals are inevitably short term and too focused on immediate profit taking

  • Comment number 76.

    Troops dying in Afghanistan for 25k?
    Police officers risking their lives on the streets at night for 30k?
    And City bank staff???

    Re 63 nburge.

    Of course financials are a vitally important industry, but is any employee worth a million or three?
    They are only employees, they don't own the business.
    And you make the point that they may all run off to Hong Kong or Dubai.
    China and Dubai and everywhere else are suffering greatly because of the antics of American and British bankers....they may not be as keen to see UK financial staff as you think.
    Serious control is needed, the free-for-all must end, and that includes salaries and bonuses. Incentives, yes....Lottery jackpots, no. (Only MY opinion).
    Some really good posts on here today.(Disregard my rubbish...I get the red-mist and go into a rant when anyone mentions banking bonuses).
    But it's good to be able to refer back to R.Pestons' piece to get a balanced view.

  • Comment number 77.

    The answer is of course to compromise.

    Bankers bonuses should be allocated by precisely the amount of cash that they can stuff in their mouths and swallow in a half hour sitting.

    When it comes around to bonus time they should all have to line up, put on bibs and eat their bonuses out of a trough. This would ensure that the hungriest and more motivated bankers get the higher pay and perks, and that the reckless, risky bankers would probably all eat until their stomachs popped.

    This would enable the bankers to keep the bonus fun day that they've all grown so fond of, would be great for morale, and would, I'm quite certain, prevent the massive brain drain of talented staff should the bonus system be eradicated completely.


    These bonuses should also be paid in coins.


  • Comment number 78.

    The problem here is this mythical belief that there are a few talented individuals in the world who need paying a fortune. Ever noticed that it is the very people on those salaries who continue to preach that myth.
    --------------------------------

    Well said mar39241.
    Talent? Since when has the word 'talent' been a suitable noun to describe bankers.
    Oh yes, since various individuals had a vested interested in describing them as such. Lets be honest, they're just a bunch of professional office workers who have climbed the corporate ladder by doing a decent job and/or knowing the right people.

    Gordon Brown trotted out the 'we cant afford to lose the country's talent' line some time ago. Well he would would'nt he? All those mortgages sold along with many other financial 'products' meant more taxable income and stamp duty for his government to mis-spend. Of course there is also the possibility that he (and other MPs) have a few influential 'city' friends who would be less than enamoured with any tampering of the present system, but I would'nt like to speculate.

    Talent!! Dont make me laugh.

  • Comment number 79.

    Is Democracy an impossible dream? Is corruption in corridors of power inevitable. Democracy is meant to mean 'government BY the PEOPLE through its elected representatives'.
    Once upon a time the representatives were elected by the people and split into two distinct power groups, both with laudible principles, depending on which side of the fence you sit. Now the representatives are elected by their buddies and the only discernible difference is that Labour spends money like a spendoholic wife until the Tories are elected to reign them in by shredding the credit cards. When people tire of the Tory misers they elect Labour back in.
    I don't see a better system but I would just like to see more truly principled Politicians not mired in sleaze and deceipt and demonstrably not corrupted by power.
    In reality the expenses row is a red herring. It is the lack of transparency, logic and care behind the system that grates, leaving each MP to decide for themselves whether they have the face to make claims within the rules they know to be unnecessary and unjust.

  • Comment number 80.

    There are so many issues at stake here with the economy, bonuses and MPs snouts in the trough.

    Maybe I am wrong but I still believe we haven't seen the worst of anything yet. Everyone is trying to cling desperately to the past and what they know, but you know folks, there is no turning back. The damage has been done. This is not really a democracy we live in. We cannot have a democracy when there a different political parties etc. I believe things can only really change for the better if we start again. Parliament should be made up of true independants. People elected not for what party ideology they support but what they believe individually. In a true democracy standing for office should be available to all stratums of society. What ever anyone says, you still need financial backing to stand for election and it is still those with money behind them in what ever form who are able to stand. We like to think things have changed since the time when only monied people could be elected but although we may have changed the wording the essence is still the same.

    A prime minister should then be elected by a majority vote of all those selected to serve their relative electoral areas.

    No one party has a monopoly on good ideas. I hate to say this but they may well be those from parties such as the BNP who have good ideas. I would rather vote for an individual rather than a party. Voting should also become compulsory as it is in Australia. I'm realistic enough to know that this will probably never happen but something has to change.

    Parliament should be government for the people and by the people not government by a selected minority.

    This is where we need someone with guts and determination to stand up for a complete change in the whole democratic/economic systems. Maybe an Oliver Cromwell Mark 2. Mind you I didn't like some of his ideas but...
    And yes folks, you wouldn't believe it but he was a forebear of mine. Not necessarily proud of it but there you go.

    I know this is is maybe a bit off the point of the original Peston post but it is all part of the same problem.

    Generally I say a pox on all political parties.

  • Comment number 81.

    Just had a thought . . . The same system would work perfectly well for MPs expenses.

  • Comment number 82.

    eddixon...very wise words indeed.

    If civil servants and politicos were so keen to be paid a salary competitive with the private sector they should pay the same price for mistakes; dismissal.

    The bonus culture exists to promote enterprise, enterprise exists to create wealth and jobs.

    The civil service and politicos appear to exist to perpetutate their own agrandissement.

  • Comment number 83.

    #79
    Sort of on the same wavelength, you must have read my mind!

  • Comment number 84.

    Stevewo - I accept the banking sector get vast salaries that make dying out in Afghanistan or being stabbed on the streets of London for a pittance utterly incomprehensible. For whatever reason people on here seem to forget that for many years these "masters of the universe" did grease the wheels of the economy and enable the rest of us to prosper. Those wheels have now come off, but you can't forget that a lot of prosperity and wealth has been created and enjoyed by the hard work of those in the Finance sector.

    Yes they're greedy, yes they will run amok without propoer controls (not all, but most) and yes they have made a monumental mess at the moment, but the profits of their transactions must go somewhere. You have a few options as far as I'm concerned here, and forgive me if I miss any, but these are pass the profit to the trader in the form of a bonus, pass the profit on to the shareholders, pass the profit into Charity (why would this incentivise anyone?), don't make as great a margin on the transaction (no incentive to shareholders or staff). Some traders create huge amounts of wealth for the banks that employ them, this money must be distributed somewhere. Everyone wants "their fair share of the cake" and if a trader thinks he can use his abilities to get a larger slice elsewhere, he will. I'm afraid we have to pay these people according to the wealth they generate.

  • Comment number 85.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 86.

    As a commodities trader in London I earned 120k per annum. I had almost infinite risk limits to go and punt the bank's cash on oil, coal, gas and power prices. I expected (no, I should rather say demanded) at least 10% of my annual PnL (profit and loss) in bonus. Except of course those who made a loss didn't have to pay in, they just never got a bonus. Trading is a free option. Considering my annual PnL was around GBP5m we were quite well looked after. Where did all that profit come from? Simply by chasing markets higher or lower, mostly higher....

    It used to be that a coal producer got together with a coal buyer (eletric utility) and negotiated an annual price. Then the markets deregulated and the banks got involved to provide hedging facilities. Then people started trading these markets for their own sake and now you have to pay higher and higher energy bills each year. Of course we're going to run out of gas and oil so you would have paid higher prices eventually anyway... I was one of a handful of people responsible for 'commoditising' the coal market and for my part in that I'm truly sorry.

    But actually you should be glad that banks punt commodities because they also drive the price down. What you should be really scared of is the mad buying and selling of other fixed income products like debt and government bonds. Extracting money out of nothing by risking something is the art of trading. It's only really got going in the last 20 or so years and it's going to bury us all!

  • Comment number 87.

    Robert peston says: "A committee of MPs today criticises a remuneration system that gave ... excessive rewards .... which, it says, led to "reckless and excessive risk-taking". On this occasion, the MPs are only voicing what many British people have thought for months."

    Months, Robert? Years, many years.

    I can remember (and so can you, I'm sure) when those among our classmates who went into careers in banking were generally those who (to put it politely) were not the brightest.

    Despite what certain high-minded individuals may claim, human behaviour is largely dictated by self-interest.

    Sad perhaps, but a fact that every citizen should be taught to understand before the age of eleven.

    To digress slightly, back then a career with the police was one step down from one in a bank. And just look at what a mess our police services are in today after years of poor quality recruiting.

    Then, once upon a time, came Margaret Thatcher.

    She was quite right to cut out a great deal of ineffective red tape and to introduce more competition into many areas of activity. She was totally misguided, however - urged on by one of her main henchmen, Cecil Parkinson - to believe all the tosh spun by the self-interest groups who tricked so many into believing that self-regulation was the thing.

    "Chinese walls" they told us, would be erected between the trading and investment arms of the City finance houses. Anyone with half a brain should have realised this was a gigantic scam.

    Other, particular, institutions would be allowed to regulate themselves in their own individual ways, we were told. God help us.

    Unsurprisingly, the stockmarket was a much healthier place before insider trading was outlawed. When all and sundry were free to concoct every kind of rumour, and investors could trade on them, the culture of caveat emptor ruled.

    Then came the era of regulation. Today, trading on information arising from privileged knowledge is more profitable than it has been for a hundred years, but is practised only in secret, and only by those who are genuinely in the know.

    So, with no chance of enriching themselves legally in the subsequent, foolish, world of semi-regulated banking, the guys with their hands on the money devised the system of "heads I win, tails I won't lose" which we now discover to have induced them to take stupid risks.

  • Comment number 88.

    Pot and Kettle was my first thought.

    I don't have a problem with really clever people earning bounuses which benefit me as either a customer, shareholder or even a bank employee. but when these awards are made to people who are just greedy meeting inappropriate targets in dealings in which they don't actually understand the underlying transaction its a different matter.

    The guys at the top need to be suitably qualified and its down to the shareholders and non exec directors to police it. Unfortunately the non execs are basically the same sort of people so the only way to sort the problem out is to have a complete change in the management of the banks (bring back the Mainwairings) and as the major shareholders the state is perfectly placed to enforce this. Pity the government is full of sleaze as well - time for a revolution then?

  • Comment number 89.

    "In my opinion the government should slap a retorical 90% tax on all bonuses paid over and above the average banker clerks wages - regardless of the where they are domiciled."

    You obviously don't understand domicile. Much to Gordon Brown's disappointment, his tax tentacles do not reach all over the earth.

    "There was no business reason to pay these bonuses in the past as the rewards given in no way reflected business profits nor provided a quality product."

    I'm sorry, but it is the most meritocratic sector on earth. Base salaries are low, keeping fixed costs down, making the institutions more stable. Bonuses cannot be paid unless there is sufficient profit. It is not for you to decide what is or isn't a quality product. The market will tell.

    "Neither can an argument be made that the business performed by these financial "wizards" constituted sound financial principles or regulatory practices. Therefore the payments should be looked at as gifts in the minimum and bribes at the worst case."

    I can only think that the ugly politics of envy is rearing its head here. You might as well blame the construction industry for having the gall to build properties that, at some point in the future, ended up falling in value, as well as blame bankers for creating securities that at some point subsequently fell in value. Just as market conditions change, rendering certain ordinary businesses loss-making, so too can banks be rendered loss making as a result of changes in market circumstances.

    You don't hear many calls, following the near-collapse of the coal industry, for coal miners to be forced to repay some of their salaries earned pre-92. Ah but I suppose bankers, generally earning a lot more than coal miners, should be punished, shouldn't they. How dare they earn more through hard work, what utter nerve.

    As a matter of interest, and to feed your thirst for retribution, I can tell you that around 15% of bankers have lost their jobs since the start of the credit crunch. If 15% of the UK workforce had lost theirs over the same period, we would now have unemployment approaching 7 million.

  • Comment number 90.

    Re 84 nburge.

    Traders can make a lot of money for banks.

    But why dont we give all soldiers 3 million a year? (Their risk and sacrifice is priceless).
    And why dont we give all police officers 3 million a year? (Law and order is priceless).
    And why dont we give all oil-rig and gas-rig workers 3 million a year? (They generate billions for the economy).
    And why dont we give all electricity workers 3 million a year? (Without them we're all lost, including the banks).
    And why dont we give all surgeons 3 million a year? (Their work is literally priceless).
    Please answer me and the rest of the country this one question.....
    WHAT'S SO ******G SPECIAL ABOUT BANK WORKERS?????

  • Comment number 91.

    nburge, as a trader I know that we didn't generate wealth. Sure, we made money for the bank but we simply took it from somewhere else. The difference between the rate that central banks print money and retire money from the system (when adjusted for inflation growth) each year is the increase in real wealth. Anything above that is a paper profit which can be borrowed from the future to be booked today. Or else the profit is taken from somewhere else, usually by keeping companies and private individuals in debt.

  • Comment number 92.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 93.


    At the outsetv of its existence, the FSA were aware that an inappropriate remuneration structure posed risks to the financial system and that is why, back in 2001, the FSA linked pay with its training and competence regime.

    As for the non-execs and corporate governance, I think we have a problem. we had the Cadbury Committee report of 1992 and many others have followed which have sought to tighten up the way in which companies govern themselves. Financial institutions have the FSA rule book to bear in mind too. However that appears to be a toothless tiger, since the concept of senior management responsibility seems to have evaded the FSA's enforcement team (which, incidently, was reduced from an intial high in the Brown years) on the basis that I've seen no publicity on the removal of anyone's authorised person's status as a result of their participation in the greatest collapse of confidence in our banking system since - well, probably forever.

    So we can have a majority of non-execs on a Board. We can have an audit committe, a remuneration committee and a nomination committee. We can have senior managers of financial firms registered as Approved Persons with the FSA. We can have the accounts of corporate bodies audited. But in the end, so what?

    At the end of the day, the trigger event to corporate failure will be a mistake, and this will usually be accompanied by some corporate governance and financial characteristics that are typical of the failed company: a dominant CEO, over-leverage and a so-called big project (all per John Argenti).

    As far as I know, the first company that resembles anything like we have today was formed in 1653. I guess in some respects, we aint a lot further forward in the way assets are protected.

  • Comment number 94.

    If we changed the name of these bonus' to commission (eg the people involved get a % of the profit generated on a transaction) would everyone be happier and we can then move on?

    If a trader generates a profit for their bank of say £10m in a given period and they get a bonus of say £100k for that transaction (1% of the value) would you begrudge them their payment? Isn't this similar to other incentive schemes (eg piece rate bonus in manufacturing or 'call availability' in call centres) - just because the numbers are higher doesn't make it necessarily less valid.

    As for whether some of the trades hold up in value as to their future value again this is similar to other industries. In the piece rate example above should we wait for the goods to be sold before we give the manufacturing worker their bonus? How about a long contract that a salesman manages to get - if it goes bad after a few years as conditions change would you hunt down the salesman and demand the money back?

  • Comment number 95.

    Re 91 roughashlar.

    As a trader you make a very good point.
    "One mans' gain is another mans' loss" etc.
    That's a mighty interesting post roughashlar.....someone should show it to Gordon Brown.

  • Comment number 96.

    A Rogue Trader was jailed for 6 years for bringing down a Bank. Am I missing something here? Is there something nobody is telling me?

  • Comment number 97.

    Number 70......

    I don't buy it.

    Up until the Daily Telegraph got hold of it, MP's were making exactly the same criticism about the publication of their expenses system, and look at the degree to which this is now altering MP's behaviour.

    I'm just saying that, rather than the FSA implementing yet more rules, having to visit every firm, vetting this person or that person, getting them to fill in this form, that form and a whole load of other forms etc etc, and building a behemoth of a regulator, a much better way would be to force banks - in fact any limited liability company whose only product is money (so this would include insurance co's, investment co's, betting shops, hedge funds etc etc) - to disclose much more information into the public domain.

    One of the greatest innovations promoting economic growth in the western capitalist model was introduced after the debacle of the railway boom in the 1850's when huge investments that were going wrong were cleaning out many people personally and having knock on effects elsewhere in the economy - this was the idea of limited liability companies.

    The bargain struck, though, was that if you wanted the benefit of becoming a limited liability company, you would have to submit accounts into the public domain, so people could see your balance sheet, ownership structure etc etc.

    What I'm saying now is that it is the right time for another new innovation of similar magnitude, to increase economic growth, competition and the 'optimum allocation of capital' - this being legislating for any companies who deal in money or monetary instruments only to have to submit much greater levels of information into the public domain.

    Why? Well, because the 'raw material' with which they trade is other peoples money, not their own (i.e. fundamentally different from every other limited company).

    Alternatively, if the money guys don't want to submit to this, then we should withdraw the protection of limited liability from them.

    Your point about there being competitive issues - that's right, there would, but they would all be highly beneficial to competition!




  • Comment number 98.

    Does anyone really think all this nonsense is confined to politicians and bankers?

    More than forty years ago, I - with 50 shares in a publicly quoted company - complained to the Chairman about the shareholders being asked to subscribe to a new product that we already owned, which also offered a Top Hat scheme for the benefit of company executives. On my insistence, he withdrew the scheme - until he noticed some months later that I had sold my shares when he reinstated it. He told me when we met in his office that "You really should understand that companies are for directors not shareholders" and "I'm glad all my shareholders don't read everything I send out to them."

    The scheme was underwritten by Banque Belge and doubtless had the approval of lawyers and accountants as well.

    No, it's not just politicians and bankers. This nonsense goes wider and deeper than that.

  • Comment number 99.

    #89 Old_Binky

    It was your comment "It is not for you to decide what is or isn't a quality product" that really prompted my thinking.

    The problem is that banking and finance doesn't deal, or cope with, quality issues very well - e.g. quality of advice, quality of customer care. It really only deals with quantity, of profit made, of costs incurred.

    That is why it can easily give out bad customer service - because it is cheaper.

    It really is, to quote the title of a very old TV series - "Never mind the Quality - Feel the Width".

    And that probably is what really has been the undoing of the banks.

    Thank Heavens for 'ethical' banks, not finding it necessary to take those sorts of attitudes.

  • Comment number 100.

    Post 91 roughashlar is the "Post of the day".
    In fact, it's the "Post of the Century".
    It should be re-printed in every major newspaper in Britain and The USA.
    And it should hang on the wall of No 10 Downing St.
    And when anyone starts to justify the Citys' greed....start reading it.
    We need to get the financials under control, before they wreck all our futures.

 

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