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Should bankers repay bonuses?

Robert Peston | 16:12 UK time, Thursday, 5 February 2009

Here's the argument for why no senior banker should receive a bonus, perhaps for several years.

This is not to say that all bonuses are the devil's currency and should be outlawed.

But it's about the idea that a bonus should be a reward for exceptional performance.

And the reality is that there is no big bank in the western hemisphere whose share price hasn't fallen in the past 18 months.

In other words, the senior executives of our banks have been responsible for the destruction of wealth (the wealth of anyone whose pension scheme is invested in shares) on an unprecedented, mind-blowing scale.

Since the owners of banks have been impoverished (and, to repeat, millions saving for retirement are owners of banks), it's very difficult to see how senior executives of banks should receive a penny of bonus.

Adair Turner, April 2006, John Stillwell/PAThere's a double argument why über-bankers should not be paid even a farthing of performance-related remuneration - and this argument can be extrapolated from no less august a source than the recent magisterial speech by Adair Turner, chairman of the Financial Services Authority.

It's that almost every senior banker trousered bonuses over the previous few years on the basis of profits that turn out to be a chimera, an illusion, unreal.

The point - which is implicit in Turner's analysis - is that banks' wholesale banking and treasury operations booked as profit both capital gain and income from assets that have subsequently turned out to be poisonous.

Much of this capital gain never crystallised, it was not converted into cash. Yet bonuses - in the form of hard cash and shares - were paid out on the basis of this nebulous capital gain.

Over the past 18 months, these assets - the collateralised debt obligations, the credit default swaps, and so on - have generated mind-bogglingly huge capital losses, which have hobbled not only individual banks but the entire global financial economy. And the global recession is the malign progeny of this banking disaster.

So if bonuses are really supposed to be generated by exceptional performance, bankers should now be paying money back to their organisations.

Which means that almost any senior banker who feels that he or she deserves to be paid more than their basic salaries (and these salaries are not trivial) may not be living on the same planet as the rest of us.


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  • Comment number 1.

    The Centre for Economics and Business Research calculates that U.K. bankers alone have reaped more than 31 billion pounds in bonuses over the past four years.

    That’s GBP 31,000,000,000. Personal pay. On top of salary.

    With no personal risk. And no personal financial investment. In 48 months.

    I find it difficult regard this amount of money arriving in bankers personal pockets in such a short time as other than a misappropriation of the assets of the non-banking community, whether legal or not. While technically legal, SIVs, derivatives, CDSs, the off balance sheet charade, and the blind eyes willfully turned to risk management have purposely made a farce of moral hazard and regulation. Regulation that was not the enemy of so called free enterprise, but regulation that was put in place on behalf of society to stop the very things that have happened and to provide stability to a system on which all of us are dependant.

    Each and every one of us (and that will include our children) is being forced through taxes to recapitalise banks which are crippled in part because so much cash has been taken out by the people who work(ed) there, and in part because the so called assets created by the bankers (paid commission up front) turn out suddenly to actually be worth pence in the pound.

    I deeply resent the economic carnage and personal pain this has caused, and will continue to cause to the people around me and the country I live in. And it is utterly galling that in such a short time many bankers have become rich forever on the proceeds of the very deals we are all having to pay for now.

    It is time as a society to decide whether we will tolerate inactively such pain for the many for the excesses of so few. Excesses made in breach of the spirit, if not the letter, of regulation and fiduciary duties owed. It is time to decide whether these same bankers should be publicly shamed or legislated into returning at least a proportion of enormous amount of money extracted up front from deals which have proven cataclysmic for everyone else.

    I suggest a six year retrospective tax hike to 50 per cent on all bonuses up to GBP 2 million, and 75 per cent over that. Fair? After all, we are all being asked to retrospectively pay for these excessive bonuses by government borrowing on our behalf to get capital back into the banks.

  • Comment number 2.

    Thank Robert,

    Great Post.

    But you don't mention:

    1) The bankers repaying the Billions (yes Billions) of Pounds they have personally taken from us taxpayers in bonuses before our taxpayer infusion.
    Normally, we could never morally ask for historical bonuses back, but in this case both the scale of the bonuses, the greed of the bankers, and the rage in this country justify it in this case (better than a UK revolution).

    2) Maybe the shareholders have lost enormously, but the shares should be worth zero now, and without Government backing with our taxpayer's money they would be. So we as taxpayers have effectively paid the shareholders Billions of pounds so that their losses are capped. Poor us, and ultimately lucky shareholders

  • Comment number 3.

    Why yet another blog on bonuses and bankers immediately after the last one?

    Tell us something we don't know please.

  • Comment number 4.

    In banking as in business more generally, executive returns should be linked directly to shareholder returns. Given falls in share prices, no bank - and few other companies - can justifiably pay anyone a bonus in the present circumstances.

    Moreover, there should be NO bonus payments from any bank (or other company) which has been bailed out by the taxpayer. This is what Obama is saying, since his $500,000 cap is below most senior execs' basic salaries, so by definition effectively bans bonuses.

  • Comment number 5.

  • Comment number 6.

    If bonuses are paid to staff working at any of the "nationalised" bansk - ie, HBOS, N Rock, RBS/NATWEST then I would think long and hard about withholding my taxes. Seriously - its a complete joke.

    I do not work 10 and 12 hour days, 6 or more days a week, trying to build up my own business just to see my hard earned cash being used to pay a BONUS to these loss-making, financially incompenent, 9-5 failures.

    Hindsight is a wonderful thing - and i accept many bank staff were not "in the know", but the fact remains these companies are as insolvent as woolies / jaguar/zAvvi etc etc - its just that they work for banks, and they have been bailed out by us taxpayers.

    Never mind a payout - they should all be downgraded to public sector pay scales - bank staff earning the same as other council clerical staff, such as school admin staff, hospital workers etc.

    They have no shame.....

    It really would be a scandal - surely there is some kind of veto available to the treasury ???

  • Comment number 7.

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

  • Comment number 8.

    You don't have to worry about bank robbers outside of the banks now, the robbers have moved inside, much, easier and no one comes looking for you, not even the FSA

  • Comment number 9.

    Unfortunately it isn't just bankers.

    The bonus culture cuts across all walks of life especially in the public sector.

    No longer do you receive an appropriate salary for the job you are supposed to do you are given a bonus if you are proven not to be an idiot and can actually do that job.

    Does anyone wonder why this country is no longer competitive and in such a sorry state.

  • Comment number 10.

    Savers being penalised by 1% savings rates= my suggestion.

    Withdraw all your cash , bury it in the garden and claim means tested benefits!

    To earn the equivilent of the dole from savings interest at 1 % you would need £342,000 in the bank.
    (342,000 @1% = 3432pa or £66 per week)

    To pay Council Tax from savings interest at 1% you would need £15,000 in the bank
    (£150,000 @ 1% = £1500 pa

    ROBERT if you do read your blogs I would be interested in your moral (not legal!) opinion of a saver doing just this.

    Dole Bludging - the new prudence!

  • Comment number 11.

    Yes, they should... End of!

    ... and by "bankers", I mean anyone employed by a bank who has recieved >=10% or ANYONE emploed by a nationalised bank!

  • Comment number 12.

    Best Blog Ever!

    Why aren't share holders kicking up a bigger fuss about bonuses???

    You have to pay big bonuses to stop talent leaving???

    And going where exactly???

    About time Share holders started prosecuting banking executives for the stealing their companies...

  • Comment number 13.

    I absolutely agree that bankers should repay their bonuses. they made their money out of the biggest con trick of all time.

    I have argued for a long time that we had phoney capitalism. Capitalism is supposed to reward effort and good results - a universe away from what the bankers achieved. They did a good job of bringing down the global financial system. I would suggest keeping their basic salaries was more than a reward.

    I am surprised they are not all being sued but maybe that is yet to come....

  • Comment number 14.

    the key is to give bonuses for performance over and above what you get paid for doing, but not in them in company stock, not redeemable for five years, this gives the management the incentive to stop taking short term decisions just to meet this years bonus. It will mean they have to manage the company well so that in five years time the share price has a value...the better they do the bigger the bonus!

    As all the past bonuses were effectively taken under "false pretences" it was surely fraud and the FSA should fine all bank directors an equivalent sum..

  • Comment number 15.

    --- POSITIVE NEWS ------

    A bit off topic but I for one am convinced that all the negative reporting over the last 18 months has been a key factor in the eroded confidence which has contributed to the recession.

    So a few things to point out from browsing the news today:

    - Shares are up - around 15% from their lows in December
    - Buffett is reinvesting again - a decent sign that we've reached the low
    - The pound is bouncing back strongly - up around 10% on the dollar, Euro and other currencies in the last month or so.

    And most positively from an overall economy perspective (though not necessarily from everyone's point of view) - Halifax reported a rise in House prices last month.

    I know it's only one data point, it contrasts with Nationwide and all the other arguments but there are several small signs of life being breathed back into the market in both the UK and US. House prices crashes largely triggered the present situation and it won't be resolved until they at least stop falling so this is definitely the most positive sign I've seen in months.

    Now what was that about green shoots????

  • Comment number 16.

    according to Tessa Jowell though, it would be a

    populist move to take the bonuses back, but would

    be bad in the long term, I wonder why exactly?

    seriously though I doubt any of the money that

    has been stashed away, will be repaid, because the

    same ministers on all sides of the house are

    connected on some shape or form to banks or

    financial institutions, just look at Teflon Tony, who

    still manages to stay below the radar, when in

    truth a lot of this is on his shoulders too!

  • Comment number 17.

    Bank performances over the past 2 years have been "window dressed" to justify senior staff bonuses.

    At the very least such bonuses should be relinquished.

    The question of fining banks and/or individuals does not apply - unless we scrouge the PM, the Chancellor and the IMF as well.

    The phrase "as safe as the Bank of England" is now little more than an old wife's tale.

    I'm no Labour supporter, but is the way forward to nationalise all banks operating in the UK?

    Stronger fiscal restraints in Britain are also required, probably with the strong disapproval of the international community.

    Never again can we allow any financial institution to be run like a bookmaker's shop. Probity must be the watch word.

  • Comment number 18.

    There is a simple reason why Bankers pay should not be related to performance.

    They cannot be trusted with the taxpayers and savers money and sadly as recent evidence shows many Bankers are incompetent and in some cases dishonest.

    Clever arguments will be aired in defence but the bottom line is, the penalty must be paid.

  • Comment number 19.

    There is also the small but to this tax payers mind significant point that these bonuses would be funded by tax payers money.

    Why should we "little people" who work hard in the real economy fund these ex-masters of the universe?

    I have yet to see any of these over paid, arrogant, parasitical, wasters on tv or radio saying sorry for the wholesale destruction of our savings and pensions.

    If they don'ylike not getting a bonus they can always leave and try and get a real job in the real economy.

    A year on no salary would also be a good idea - unlike the rest of us they can afford it.

  • Comment number 20.

    glad to see that you've survived your appearance at Westminster yesterday and even feel emboldened enough to kick a few banksters while they are down

    go get 'em Bob

    more generally, there is an interesting piece of analysis in today's Globe and Mail about the next moves that might come out of Washington next week; I mentioned this on Stephanomics but as an equal opportunity blogger here it is again:

    they suggest that something big may be about to happen, including a $3tn BAD BANK, the winding-up of zombie banks, some nationalisations, big tax rebates for house buyers etc

    I was particularly interested in what might happen if the US do go for a BAD BANK and put $3tn of toxic stuff in it, given that Barclays and RBS, amongst others, are listed on the NY Stock Exchange; does the US taxpayer take care of RBS etc for us? or does the UK have to co-ordinate action with the US, effectively dividing up the toxic shares?

    after all the US/Wall St and UK/City of London markets are intertwined, perhaps to the point policy moves have to take place in concert?

    And what about the share prices of our zombie banks? if a BAD BANK was set up and the toxic stuff removed, would RBS, Lloyds and Barclays shares - freed of their toxicity - suddenly shoot up from 20p like a helium balloon? giving the RBS etc execs a huge potential windfall on their bonus shares?

    hopefully that would not be allowed to happen but how? suspend the RBS shares ahead of the announcement of a BAD BANK? seems like there is great potential for speculators to run wild but I haven't seen any discussion of these issues for us ordinary civilians

  • Comment number 21.

    Robert it will also be interesting to find out how much Bonuses were paid to the
    senior Mgt of the four big banks in the last two years and where all this money is, if it is
    invested in this country or in a offshore Bank Account!

  • Comment number 22.

    Show me a government who will

    introduce legislation to outlaw bonus payments for mythical profits

    i.e. the wheezes recently perpetrated by the finance fraternity

    and I will vote for it.

    Show me a financier who can get us out of this mess

    reduce the pain for everyone

    and he can have his bonus gladly.

  • Comment number 23.

    Not only should no one in the banking or financial regulatory sectors receive any bonuses for the next few years, they should be hit with windfall taxes (100%) covering the period over which these stupid idiots setup and ran the policies that resulted in the present situation. In addition to this, thorough investigations should take place with a view to criminal and civil action being taken “pour encourager les autres”.

  • Comment number 24.

    I think you are refering to sheer-prices?

    However, I don't think anyone expects vast bonus' for those at the very top. However mid ranking Banksters can still get up to a £1 million quid or so - are these justified this year given they would have recieved nothing if their employer had gone bust?

  • Comment number 25.

    The gloves are off and Pummel Peston has come out swinging!
    Someone rub you up the wrong way yesterday me old fruit?

  • Comment number 26.

    Not only should the bonus be returned but they should be prosecuted for defrauding the government and the people. Some of the bonuses are more than most people will make in two lifetimes. It is obsene at best.

    Need to go back to tarring and feathering scoundrals.

    [Unsuitable/Broken URL removed by Moderator]

  • Comment number 27.

    Is there anyone who does NOT agree with this analysis??

  • Comment number 28.

    Spot on Robert.

    No bonuses except for performance.

    This could mean that at branch level for example some bonus may be paid but again only for performance and I mean REAL performance not some trumped up reason to pay!

  • Comment number 29.

    Why did'nt anyone else think of this!!!

  • Comment number 30.

    It will be interesting if the government includes itself in the no dividend for shareholders argument.

    I suspect not.

  • Comment number 31.

    Easy answer. Yes.

  • Comment number 32.

    The government simply don't have the cojonas to instruct the banks not to pay bonuses, and as a result the banks will remunerate their top players as per usual.

    Go down the road of asking them to pay previous bonuses back, and the only winners of that argument are the pockets of lawyers.

  • Comment number 33.

    RP, respectfully (genuinely) i think you are making the economist mistake of assuming that we all act rationally and so salary and bonuses are a reward for performance.

    This is not the case with banks

    They have all played the "carrot" game that by paying a few average people large sums of money the majority of hard working employees will think that maybe the will receive such large sums one day.

    If large bonuses only went to people who were exceptional this would dissolution the rest of the staff who will feel they will never have the attributes to have such a high position ( or so the theory goes)

    If i could suggest that you write a blog to bring to attention what seems to be a clear concensus from your bloggers, i.e. it is totally frustrating that there is seemingly no aggressive investigation into finding wrongdoers and bring action against them. whether they be bankers, auditors, rating agencies, authorities etc

  • Comment number 34.

    It's very frustrating. These bankers have ruined the economy for all of us. It's like the rug has been pulled out from under the global financial system.

    The problem is that we need the skills of the banking bosses to help fix the system. They are in demand and therefore expect to be paid. Unless they show some kindness to the suffering masses, this will continue.

    As I see it, we elect a government because we feel they will represent all of our interests. The regulators job was to represent the interests of the average saver. They failed in this duty which means the government let down Britain's savers. It is now using money for schools and hospitals to shore up the banking system.

    We need a government with backbone. One that doesn't get mesmerised by huge tax receipts from the City. One that implements fair rules for the financial sector that protect the providers of funds. One that stands up to fat cats. Problem is we don't have one now and I don't think we have one in opposition, but we need an election to find out.

  • Comment number 35.

    Good to see you're not languishing in the Tower,
    Robert. Wonder who next will be "hauled" in front of a Select Committee. Could well be our Weather Girls - accused of reporting, and thus causing, the snow and ice that has brought much business to a standstill over the past few days. I liked the report that claimed your bag had been searched and no incriminating evidence found . "Nothing to declare but his genius ". The entire comic saga
    beggars belief, but did provide a little light relief
    in the financial gloom. Thank you Robert. Have
    a happy evening - you've earned it.

  • Comment number 36.

    Banker's bonuses are just the tip of the iceberg.
    Greed is in every facet of commercial life.
    The UK's football league is one such example whereby wealth is disproportionally distributed to a small number of people.
    The argument that we can't cap wages because it makes us uncompetitive is nonsense.
    Let's lead the way and introduce some sort of limits. I'm not saying become socialists or communists but lets agree on a maximum figure that individuals can remunerate and accumulate.
    Its not sensible to have a small number of people in charge of most of the wealth.
    Politicians need to take action and business and the wider community need to lobby on these issues.
    Jason Pitt
    Business Report - West Midlands

  • Comment number 37.

    at 17:06 35 posts awaiting no bonus here then...!

  • Comment number 38.

    Who would sign off on any potential bonuses?

    Surely there are internal rules in the banks that specify x% bonus if y profit is achieved or z% return on equity?

    I'm sure such rules would result in zero bonus across the board.

    Maybe we want to think they might award themselves a bonus because we enjoy getting cross about it!!!

  • Comment number 39.

    bonus payments should be banned in all sectors not just banking.

  • Comment number 40.

    ''''''''''And the reality is that there is no big bank in the western hemisphere whose share price hasn't fallen in the past 18 months.

    In other words, the senior executives of our banks have been responsible for the destruction of wealth (the wealth of anyone whose pension scheme is invested in shares) on an unprecedented, mind-blowing scale.'''''''

    Thats ric coming from you!

    On Newsnight last night Paxman inetrviewed a couple of people an economist and a media buisness reporter was interviewed the economist stated that it was rumoured that 'certain' journalists may have been persuaded by a 'certain' government to print damaging leaks that drove down the price of bank shares prior to said 'certain' government buying stakes in said banks

    Ring any bells Robert?

    PS why didnt you turn up on the show Paxman it seems was expecting you to defend yourself, his simple 'Robert Peston cant be here tonight' didnt fully explain matters

  • Comment number 41.

    Banks got into this mess by their short term bonus incentives. At BoS their integrated finance operation was bonused inthe following way: Entirely on the arrangement fee that the bank charged based on the amount of money lent. Therefore the more money out of the door the bigger the bonus. No deferral for performance, therefore the more deals done in a year the bigger the bonus.

    As any corporate finance adviser can tell you, any deal that BoS were doing the only part of the deal that was not negotiable was the arrangement fee as that was what drove bonuses.

    One deal they did, of a housebuilder = BoS outbid a trade buyer for the company (a foolish thing for a financial buyer to do), but didn't only just beat the trade buyer but paid 20% more. During the DD process, the venders worked out that on the company's land bank BoS were paying 5 times the value, so they did what any smart person would do. They bought another £2m of land, which 6 weeks later BoS effectively paid £10m on top of the agreed price for the business.

    Utter, Utter Madness.

    All driven by the bonus structure.

    Now bonuses can be very good, for individuals, and the company. But only if they are structured correctly. Bonuses are the right way of remunerating the people who generate the wealth of a company. If a company makes good profits, the people who deliver the profits deserve the extra financial reward. Likewise if the business only just makes budget - no bonuses. In my company I gave larger bonuses to some of my employees than myself - becasue they don't own my company but they helped deliver a good financial result.

    For a bank any bonus should be dripped out over the life of the loan or exposure. Therefore if a banker makes a great 5 year loan today, that repays on time, etc etc. His bonus should be paid out over the 5 years, starting 1 year after commencement.

  • Comment number 42.

    "It's that almost every senior banker trousered bonuses over the previous few years on the basis of profits that turn out to be a chimera, an illusion, unreal"

    So in fact an act of fraud or at the least theft.

    So as I have asked every day for the past few weeks...has any banker been arrested and charged yet...answer no of course not. Nobody is going to do anything, no bonuses will be paid back, no government official will speak out. What a bunch of losers. We really do deserve better than this bunch of lily livered excuses for public figures.

  • Comment number 43.

    The bankers should be fined and forced to pay back some of their wealth!!i say this as a share holder and bank customer!

  • Comment number 44.

    Robert - agree with the sentiment of your comments, but you are linking bonuses to share price not to profit.

    For one bank (Barclays) if they announce what they have been threatening to announce next week, then there is a reasoned argument that they have produced the goods, and its market sentiment (ie out of their short to medium term control) that has driven their share price to disproportionally low levels

    So profits in 07 - about £7bn. Share price - about £7

    Profits in 08 - about £5.5 - 6bn. Share price - teetering around £1.

    Go figure

  • Comment number 45.

    Turns over.
    Realises everything that's been said here over the last four months are juust a bad dream.
    Goes back to sleep.
    Like Peston.

  • Comment number 46.

    As somone facing redundancy because of the actions of these bankers, I would like to suggest that they be tried for corporate manslaughter...after all their actions are leading to the death of many businesses.
    Alternatively, let's round them up in the square mile, gather all the people who have lost their jobs or lost money from their pensions because of their actions and let the bankers explain to those people why they were worth those hugely inflated bonuses.

  • Comment number 47.

    Bob, I totally agree.

    Unfortunately, this leaves me with little to post here....

    No way I can turn it into a rant about, well anything really.....

    Well said....

    So I take it this is purely conjecture and we will not be getting anything back from them? Shame....

    I blame Gordon Brown. Probably.

  • Comment number 48.

    Have bankers obtained a pecuniary advantage by deception? Has any banker dishonestly given information or made any statement which knowingly or recklessly was untrue or misleading and intend by doing so to make a gain for themselves or another or cause loss or the risk of loss to another?
    It is not good enough for politicians to say as they did with the Insurance Industry scandal, lessons must be learned and it will all be different going forward.
    It is not good enough for the FSA to do nothing.
    These people have brought the world to ruin.

  • Comment number 49.

    A few key questions arise in the debate about bank bonuses:

    1. Suppose a trader in a profitable bank makes a net profit for the bank of $50m using his own trading skills and the bank's capital and systems. How much of that $50m should be given to the trader as remuneration and how much should be retained by the shareholders?

    2. Is the answer in question 1 different if the bank's other activities, completely unconnected to the trader, make a net loss of $500m?

    3, Would it make a difference if the trader began his year on a hypothetical salary of, say, $1m pa but was only paid monthly cash amounts at the rate of $100,000 pa, with the balance of $0.9m only being paid if profit targets are met? In this way the trader would effectively share the pain if profit targets are missed.

    4. Are the answers to 1 - 3 different in the context of a banker earning for his bank a deal-related fee of 0.5% x $10 billion or should all such work be charged to the client at an hourly rate?

    5. Under Obama's proposal to cap "executive" pay, who is an executive? Is it senior management or does it include all staff?

    6. Is it morally wrong to provide incentives to staff (eg at Northern Rock) for achieving specific targets? Does this morality metamorphose into acceptability when applied, say, to sportsmen for winning a competition or gaining promotion?

    7. Who should determine the level at which a proportion of salary deferred and paid once per year changes to become an unacceptable bonus? This type of approach is common for back office staff at banks but is it morally acceptable?

  • Comment number 50.

    Of course the bankers should repay their bonuses but they will not have the cash- they will have spent it . What they will have is a pension fund- and we should have that.

  • Comment number 51.

    My Goodness Robert, never thought I would feel the need to mention you and author Frederick Forysth in the same sentence.

    This "repay the bonuses" proposition was made by Mr Forsyth on the BBC's Daily Politics on Tuesday ......

    ..... but the prospect of such a thing happening was LITERALLY laughed at, as out of the question, by the government minister present; the ever-irritating Ms Tessa Jowell.

  • Comment number 52.

    So make the board responsible for the bonuses - and ensure that they have to be repaid is at any time in the future the deals turn out to be bad.

    How can youi have a system than pays out huge bonuses if you overperform and gets nothing back if you lose money? Where is the risk in that.

    Greenspan said he was surprised as he thought the banks self-interest would keep them prudent. He obviously didn't consider the bankers self interest did he????????

  • Comment number 53.

    Any sensible business only pays out bonuses out of cash not out of paper profits, if a bank was lending money to a medium sized manufacturer they would not expect salesmen to earn their bonus until they had receive the cash for the sale, the same commensense rule should exist in all businesses including banks.

  • Comment number 54.

    Barack Obama is absolutely right to cap chief executive salaries in the finance sector where their failures in management led to public funds being required to bail them out.

    But more generally, if the President of the world's leading country is paid under half a million $ a year, is anyone else worth more? Business leaders claim they are paid for their talent, and if they don' get stratospheric salaries, they will go elsewhere. Well let them, if that is the only factor securing their loyalty, then it is worthless.

    The claim that bosses are rewarded for their skills is blatant nonesense. No-one fights their way to the top of power structures by talent. What gets them there is greed, ruthlessness, ambition and luck. If these are the kind of people running our major businesses, in my opinion it is urgent that they be paid ordinary salaries. At least that would take one of the elements out of the essential mix for business success.

  • Comment number 55.


    "It's that almost every senior banker trousered bonuses over the previous few years on the basis of profits that turn out to be a chimera, an illusion, unreal."
    While I'm in total agreement with the intent and your conclusions, Chimera???
    "Typically seen in zoology (but also discovered to a rare extent in human beings), a chimera is an animal that has two or more different populations of genetically distinct cells that originated in different zygotes; if the different cells emerged from the same zygote, it is called a mosaicism. Chimerism in human beings has very few (about 40) reported cases"
    Other uses, but none really what you intended...

    Give the bankers Share options as an alternative to bonuses, but price them at the median price for the twelve months ending last July. They can tyhen exercise the options when the shares have recovered...

    Peace and equity
  • Comment number 56.

    You've hit the nail on the head.
    The whole country is infuriated with the greedy, incompetent, negligent bankers.
    They have failed miserably, but enriched themselves massively.
    Justice must be done.
    Cameron knows what to do with them.

  • Comment number 57.

    All banking bonuses (assuming there should even be any) should be in the form of share options in the company, with a strike price equal to the market price at the time of issue, and which can only be exercised after three years or more.

    But let's not forget, the issue is not just with remuneration - it's the selection criteria followed by banks' HR departments.

    It's well known that banks actively seek out the repugnant, greedy and more aggressive applicants, whilst overlooking any which display a modicum of restraint and responsibility.

    There is your fundamental flaw.

  • Comment number 58.

    if a bank had to borrow billions or millions from the government then their staff should automatically lose any rights to bonuses for that year.

  • Comment number 59.

    Bonuses for Senior Bankers:

    How about 5 years in prison instead!!!!

  • Comment number 60.

    So I'm an employee in a Financial Services company.

    I'm set a target.
    I don't set the rules.
    I'm offered a bonus for meeting that target.
    This is part of my contract of employment.
    I exceed that target.

    A year later I put my hand out for the money I've worked for, my company agreed to pay and which is due under my contract.

    My company is now entitled, thanks to Mr Obama and Mr Brown, to pocket the money I earned and which is due to me.

    All in the name of fairness!

    I'm sure the unions would be marching everyone out the door if it was done in manufacturing.

  • Comment number 61.

    60 posts and not one has been moderated. What`s going on here - have the BBC moderators gone on a wildcat strike????

  • Comment number 62.

    When the US company I worked for went into Chapter 11, the new CEO came on board( an internal promotion) to turn the business round at zero salary and no bonuses. He had some very demanding financial targets to meet in order for him to get something when the restructuring was successful and the business was sold as going concern. This motivated all the work force, mollified the creditors and shareholders, who in the end did get some sort of pay out, and put out the message that he was there to do the right thing rather than feather his nest as his predecessors had. Would that the senior management of the UK's failed banks would do that sort of thing voluntarily rather than having to be shamed into it.
    But lets keep on shaming them.

  • Comment number 63.

    Wasn't the downfall of Enron because they used the accounting principle that as soon as a contract was signed they could post the predicted profits as real profits in the P&L. If any of these contracts didn't make as much profit (if any) on realisation they then got shunted into dummy off-balance sheet companies to hide the losses.

    How is that different to now?
    The banks posted profits based on expected future profits using M to M valuations and loss making ventures were packaged up, given a different name and sold on to unsuspecting investors.

    The heads of Enron were jailed and fined, hint hint.

  • Comment number 64.

    So why do companies offer bonuses?

    To attract the best employees/managers.
    To ensure they only pay them when they have earned the company the money to pay them from.

    What this witch-hunt will do is ensure nationalised banks get the dregs of the employment pool - ensuring that HSBC, Barclays and the like open up a competitive advantage.

    That's why nationalisation never works. Wrapping people in red tape and not offering the right carrot always results in lower performance - and it's just as true in a recession as any other time.

  • Comment number 65.

    Robert I am surprised you are only coming to this conclusion now. Some of us on here have been harping on about this for months.

    All the talk from government and ex bankers and the like has been very mild and measured. They hardly want to bite the hand that feeds/fed them.

    For the rest of society its a no-brainer that the bonus money should be returned. A lot of us would go a lot further and actually jail those heads of banks who have destroyed our economy.

    Failure to do so will sow the grapes of wrath amongst those people who have lost their homes and jobs.

  • Comment number 66.

    It's a tonic to read this blog, you make a great case for bankers not only paying the money back but recognising their sharp practices and understanding that their game is well and truly up.

    If not, then what's to stop anyone placing bets on any horse at the Grand National at 100-1 and taking the money, even if the horse falls at the first fence?

  • Comment number 67.

    And you're absolutely right Robert.
    The "profits" which these bonuses were paid on never existed.
    They were hypothetical.
    They were based on ridiculous "supposed" asset values.
    The bankers were just brewing up catastrophic losses, which have been passed to us.
    All these bonuses were paid under false pretences.
    And there are a few accountants that need examination.
    Urgent public inquiry needed. Brown is frightened of will expose his incompetence as well.

  • Comment number 68.

    directors- zero, plus prosecution for fraud / negligence, and reclaim any bonuses paid under false pretences.

    traders- pay based on genuine realised profits, not on paper profit.

  • Comment number 69.

    Surely the principle should be: If we make a profit, and your performance contributed to that, you will get a bonus. If we make a loss, and your performance contributed to that, you will be asked to forfeit some of your salary.

    Until reward and risk are properly tied together, we can never be certain that leading bankers will not put earning their bonuses ahead of common-sense and prudent behaviour.

  • Comment number 70.

    Well said. Those responsible should either repay their bonuses or be charged - it is ridiculous to suggest that notd one of those executives knew what was going on. Like so many Directors, executive and non-executive they were hoping that they would retired and living it up far from the City when the balloon eventually went up.

  • Comment number 71.

    hello,i really enjoy the business reports,they are excellent.i think northern rock should have been allowed to fail,it is meant to be a free would have been harsh on some savers,but it might may have prevented the total meltdown we have question would be what would have happened if the banks had not been bailed out?.

  • Comment number 72.

    Robert - it's simple really.

    If you continue to pay people with performance related bonuses then we will continue to have the peaks, troughs and corruption within our Economy.

    I don't know why this is even up for debate. I suppose because if the world eventually wakes up to the fact that performance related bonuses encourage risk taking and corner cutting (which then lead to booms and busts within the Economy) - then it would logically follow that competition is NOT the most efficient basis on which to develop and run your economy (which every western country has to one degree or another)

    At that point we would see that the people who work at the top are not there on merit, but merely the suggestion or impression of merit.

    Anyone who has worked on a used car-lot, or any other pressure sales job will know perfectly well that competition eventually leads to inefficiency and more importantly that it's not the best salesman who sells the most but rather the salesman who is prepared to stiff his colleagues in order to get ahead.

    Banking is no different - if you think you can outperform your peers, then you will go for CDO's and SIV's and other investments that appear to offer higher returns.

    Answer this:
    How could a man with NO BANKING EXPERIENCE get a job running one of the biggest mortgage lenders in Britain (Sir Tom McKillop)?

    What happened at RBS was a disgrace - and yet inevitable as the man at the top had no idea what he was doing.

    ....but with all good businesses, they're easy to manage during boom time.

    Where was the due dilligence on his appointment. They could at least have got someone who works in a bank!

    Best of all I saw Mr Peston was hauled in front of MP's who seek to blame him for the run on Northern Rock.
    I hope you gave them the finger and pointed out to their dim minds (because MP's no nothing about the economy) that the ONLY PLACE THE BLAME LIES IS BETWEEN THE GOVERNMENT, THE FSA and THE MUPPETS WHO RUN THE BANKS.

    Robert - next time they haul you up in front of MP's for questions then please take me along. I have some questions for those MP's myself - just some simple ones which will expose them as the frauds they are.

    No wonder the bankers have been making hay - the fat controllers (the MPs) have no idea - but having said that - nordo the bankers!

    ...I'm just waiting for the people to work it out - and then we shall see what happens....

  • Comment number 73.

    Come on Robert, you are supposed to be the BBC BUSINESS Editor. Yet all we get is banks, banks and yet more banks!!!!!

    Start devlving into the role in this mess played by UK multinats or how debt ffunding has crippled business or executive pay for comapny failure.

  • Comment number 74.

    Increasingly, the whole system looks like smoke and mirrors, and in the US, our Constitution is being shredded.

    Here follows a chilling account of what prompted B of A to acquire Merrill-Lynch.

  • Comment number 75.

    Dear Robert
    Not only are bankers living on a different planet but sadly, I fear, so are you if you seriously think that:-
    a.the bankers are going to stop paying themselves bonuses-who's to stop them?
    b.they would actually pay anything back!
    Bankers do not become bankers for the general good of society-and don't talk about 'growth'-they become bankers because generally they are greedy, self centred and arrogant.

  • Comment number 76.

    Could not agree with Robert's blog more.
    I genuinely wonder why Peter Mandelson or Gordon Brown have not expressed exactly the same sentiment.

  • Comment number 77.

    Instead of bitching about bankers who made money, through our greed, for lets face it had the general public not wanted to buy property there would not have been sublime (error intended) mortgages. There are also the estate agents who made bucketfuls of money selling price inflated houses, are we to take back their bonus.

    Then we can look at supermarkets and ask about the directors bonuses, for all they do is collect food from a farmer and distribute it, managing to rip the farmer off and the customer along the way. Or do we wait until through their greed the food distribution systems collapses and then take back the bonus.

    Or Prime Ministers who destroy countries, both there own (UK) and others (Iraq). Do we take back their big paydays as bank directors and on lecture circuits.

    It seems to me there are a lot of bonus payments for people who fail, but that's alright as long as you do not use the word gollywog as then you really are in trouble.

  • Comment number 78.

    It's interesting that the bosses of Merril Lynch in the US, knowing what was going on with their bank, decided to bring their bonuses forward a month early.

    It is obvious they did this to stop them from being unable to claim them post-bail-out.

    Very devious, wouldn't you say.

  • Comment number 79.

    Bankerrs bonuses should be swapped for the toxic waste they created at book value [mark to model] even if it means using rubber gloves and a long rubber tube and wide funnel .

    And since we are on the subject of justice we can do the same for the FSA ,the AAAAccountants and the Pied piper of Sedgefield without whom this free [at point of laughing ]entertainment would not be possible .

    The bankerrs took bonuses on knowingly toxic products deliberately burried off balance sheet ,that pushed through the system the previously created tripe[once hidden] by inflateing asset prices another notch on the ratchet to the point of allowing the earlier product emmerging years later, to appear comparratively sweet smelling seillage by comparrisson .

    Modern capitalism[the right of fools to create money from thin AAAir, backed by corrupt central banks has ruined the functioning of a free market economy by distorting prices through allowing the leveraging of large ammounts of money created from thin AAAir with small ammounts of privately held manipulative capital that over traded its position for its own gain whilst transferring great risk now self evident to the general economy [with the conscious conivance of central banks ,and their political authorities guaranteed a job for life later]

  • Comment number 80.

    I fully agree with Robert. Many if not most senior bankers and many other senior staff have been living high off the hog for years. They create no value whatsoever, take huge bonusses, are largely responsible for the global crisis and want a public bail out. Many of them should be sent to prison for fraud and made to repay the last 10 years bonusses.

  • Comment number 81.

    There is plenty of talk about the best solution to our economic problems, but no discussion of the ethical questions. First, savers who have not lived beyond their means are currently subsidising spenders some of whom have bought houses they couldn't afford or enjoyed expensive holidays during the boom. Second, pensioners have had their standard of living ripped apart. Some, I am told, can hardly feed themselves. Third, the bankers whose greed brought about our problems, have been rewarded with huge bonuses. Finally our shameless politicians are now trying to silence the voice of free speech (hence the appearance of journalists before MPs). If this country is not financially bankrupt, it iscertainly morally bankrupt.
    PS Thank you, Robert for your blog on Total. It came in very useful for a lesson on inward investment and generated much discussion in my A' level Business Studies group.

  • Comment number 82.

    Police please .....

    Quite right. The very idea of bonuses for them is obscene.

    Human nature being what it is, there will no doubt be squeals of protest from those who will argue that they are now battling to recover the situation.

    These should be squashed and the piggies should immediately have their snouts removed from their troughs.

    I believe there should be criminal investigations to establish the level of fraud that has been perpetrated.

    Some of the more outrageous ones (ie: Madoff) are now in progress, but does anyone seriously believe that the behaviour of very many senior people in the financial sector has not crossed the line? Of course not!

    This is not merely a case of unwise lending - huge volumes of fraudulant financial instruments have been sold by those who were well aware that they were grossly overvalued. Indeed, carefully constructed so as to be opague to scrutiny.

    This has been done deliberately with a view to triggering ridiculuous bonuses that were geared to apparent short term profits.

    It has largely all been a gigantic scam.

    How on earth can it have happened? Easy. People lie and behave dishonsetly if they can get away with it. And with individual bonuses of literally millions, the incentive to lie, cheat and steal proved irresistable.

    Where were the regulators? What did the ratings agencies think they were doing? Why didn't the government rein it all in?

    Again: greed, vanity and ambition.

    These are crooks who have stolen our money. Bonuses? To hell with that. Prosecute them and confiscate their assets.

    The world being what it, no doubt most of these despicable creatures will manage to wriggle away. But let us make at least a few draconian examples. That will be the only we can draw a line under this disgraceful business.

  • Comment number 83.

    Robert is completely correct in everything he says here. It is absolutely clear that, where financial institutions have been bailed out, the majority of the cash bonuses for the last 3 to 5 years should be repaid. They were 'earned' out of phantom profits. Why should we pay bankers millions of pounds to destroy the financial system, trash shareholders and wreck the economy?

  • Comment number 84.

    Should bankers be made to repay their bonuses? Yes, yes a thousand times yes sez I and not just their bonuses either. Let's strip the ****s of every last thing they own right down to their shirt studs.

    But the decision alas is not mine Who's decision is it, I wonder - Gordon Brown's? Mervyn King's? The FSA's?

    Perhaps none of these but someone we haven't heard of yet, a person springing forth out of the stress and the turmoil to come as the living embodiment of righteous anger and thirst for justice.

  • Comment number 85.

    It seems to me that the general principle of executive salary and bonus should be addressed by shareholders in the AGM.

    One of the problems in recent years is the failure of shareholders to hold the directors to account.

    This has happened because the directors have been able to access money by borrowing via the wholesale money market rather than by asking shareholders for capital via rights issues.

    In effect the directors did not need the shareholders. Now they need to raise cash via rights issues the shareholders should exercise their power and dictate general remuneration policy.

    They might do this by threatening to deselect the members of the remuneration committee from the board

  • Comment number 86.

    Robert, totally agree. Bonus is for exceptionally good performance. People who created mess should, at least, return their bonuses.

    What also should be encouraged in business is RESPONSIBILITY and MORALITY (moral principles).

    Some people turn into animals where greed and get more and more irrespective of the society is way of work. Capitalism should have a human face.

  • Comment number 87.

    He certainly tells it like a lot of people see it, now why is it that the same common sense approach can't also be applied to the political arena.

  • Comment number 88.

    Logical and fair: banker's need to repay the bonuses received for underserved performance. Liability to pay should fall on bank's executives as a back stop; if a lower-ranking banker absconds before paying back the monies due his/her superior shall be liable. Bankers who do not pay their bonuses back should not have access to ANY publicly financed benefits until they do pay the bonuses back!

  • Comment number 89.

    Moderators, there are only 87 posts waiting - have you all been moved over to the BBC complaints department?

  • Comment number 90.

    Absolutely! Why should the taxpayer be bailing out the banks when the top brass are being paid mega bucks in bonuses. Prudence is being penalised, savers sucked dry, and pensions impoverished. I dread my old age. And I'm angry that my grandchildren will be paying off the zillions that are being poured into the bottomless pockets of bankers.
    Mel Menzies

  • Comment number 91.

    I'm sure any scrutiny of the so called contracts entered into by the banks that has led us to this meltdown would show how wreckless the bank bosses have been.

    I would bet my shirt that many of these contracts are legally unenforcible, are based on highly dubious assumptions, and in some cases down right made up.

    Due care and diligence is something that these bankers will have to learn but after the appropriate criminal investigations have taken place.

    In the meantime, all senior staff of those banks that have been rescued by the taxpayer should have their pay cut to no more than 100,000, with no bonuses in cash or kind.

    Anyone paid more should have to demonstrate that they played no role in dodgy dealings.

    The board members of rescued banks should also have their assets frozen, pending the outcome of criminal investigations.

  • Comment number 92.

    Bit of a queue for moderation so forgive me if I make a point which my well have been made before. I tend to agree with the view that the policy makers of poor performing organisations that were custodians of our cash should not be rewarded.

    For a while I worked as a lowly customer service assistant in the financial services business, where salaries are quite low and the usual annual bonus is about a month's pay. I would bet that my current equivalents at RBS, NR and HBOS etc. have never been worked so hard or had so much abuse thrown at them over the phone. They probably deserve a bonus.

  • Comment number 93.

    "No reward for failure."

    Time to go then Mr Brown!!

  • Comment number 94.

    the moderators are obviously going for a backlog of a century.......come on BBC if you insist on pre modding the least you can do is pre mod!

  • Comment number 95.

    I do not blame the bankers they will do what they can get away with until either their share holders or regulators stop them. .In my view its the Government that bears the largest responsibility as they allowed the money supply to get out of control and stood by and watched the asset price bubble develop driven by the derivitives market.
    The salaries of CEO's and CFO's in major uk companies have accelerated over the past 10 years. tThe acceleration is a direct result of companies compensation committees acquiescing to pay consultants recommendations. The compensation committees are stacked with non exec directors drawn from other blue chip companies. As the pay consultants base their recommendations on the average and the upper quartile spread of packages for directors managing similar size companies it becomes in the interest of the non exec's to ratchet up the packages presented as it is their own interest to see the the averages rise as their own salaries are set based on the average for their primary position. As a result you get a positive feedback loop with salaries getting bigger and bigger without any real justification.
    The average compensation package for the top 30 CFO's in the uk was in excess of one million GBP in 2007. The top 30 included many of the CFO's of the Banks that have failed or made huge losses in 2008. These same CFO's have balance sheets with assets declared at face value for the past eighteen months despite it being clear that these so called "toxic assets" are worth only 10-20% of their face value.
    The share holders have been fleeced. As a result In the US investigations and prosecutions for fraud are taking place in the UK we talk about should their knight hoods be removed and their bonuses paid back. Here’s a novel idea how about we leave their knighthoods and take their liberty away if fraud can be demonstrated plus freeze or seize their assets whilst they are investigated

  • Comment number 96.

    Problem is contractual bonuses. A lot of the more junior bankers (most of the people not covered by the "senior bankers" in this article) have bonuses written in, predicated on clear KPIs, which were achieved....didn't matter if they subsequently unwound.

    Over the years, bonuses in the UK (not just restricted to banking) have become just another element of the pay package - no one really remembers their original use as reward for performance well beyond requirements and expectations.

    I recently had dinner with senior bankers whose view was, "if these people who are complaining wanted big bonuses, they too should have worked hard and become bankers". Definitely different planet.

  • Comment number 97.

    I had a feeling this wasnt gonna get modded very quickly. Nearly two hours and still none.
    Treading on thin ice me thinks.
    There will be some dissapointed posters.

  • Comment number 98.

    The bonuses, as so eloquently explained by Robert on this occasion were gained under false pretences.

    No doubt they will argue that no law was broken but put them in front of a jury of '12 good men (or women) and true' and lets see what the outcome is in terms of paying the bonuses back. It's a no brainer.

    No doubt they will hide behind their lawyers and the recent roll back of trial by jury in financial cases 'too complicated for joe public to understand' aparently.

    I wonder who whispered that self interested idea into politicians ears? The people are not clever enough to pass judgenent on complex financial cases sir...dont bother them with the burden of trying to understand that which only the financial masters of the universe can comprehend sir.... better leave that to a bunch of highly specialised highly paid lawyers and consultants sir.....

    Nice little protection raquet that.

    There is an unwritten moral law which we should all abide by. it is unwritten because it is constantly changing as the world constantly changes which is why a jury system of justice is the best to continually moderate it no matter what the subject matter.

    Funny how everything that is written in this blog emerges as political announcements some time later.

    Here is an idea.

    All we need is somebody to put a case to the director of public prosecutions, it may not even be a good case based on the written law but if it gets past that stage and is in front of a jury and a presedence is set, that is all we will need. Noboddy will dare challenge it then and the cycle of protectionism within the financial and legal elite will be broken.

    Alternatively they could just voluntarily give the money back of course such that we can all feel like a little faith in human nature has been restored.

    We have formed a lobby group outside of this arena to focus our efforts and hopefully assist in some way in getting a more focused message accross.

    Vegetable - grower and Ed iglehart regularly post links to the lobby group forum for those who want to track it down and contribute.

    If even one city high flyer publicly decides to give even half of his or her ill gotten bonuses back off the back of these writtings and the lobbyists activities it will be worth it.

    Time to crank up the pressure.


  • Comment number 99.

    will we get 100 unmoderated?

  • Comment number 100.



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