Tuesday, 17 February 2009

Is Talent a Bonus?

I nearly choked on my evening meal when I heard the news tonight that the bonus trough at RBS is to be 'significantly reduced'. Just how much of the swill is to be held back is proving hard to pin down however. As I go to virtual press, Mr Darling is being cagey about this small issue but I guess we can be grateful that finally, after significant public outrage, something is being done.

I personally have found it hard to read the media coverage on this whole issue of pay and bonus payments over the last few weeks. From Lloyds TSB CEO Eric Daniels' comment that he is on a 'relatively modest salary' to RBS CEO Stephen Hester trying to justify bonus payments because without them he wont be able to 'replace the staff that got us into this mess', I find the vast majority of commentary from those at the heart of the problems hard to stomach. How they can make these statements and keep a straight face is beyond me. As is their ability to sleep at night.

Not withstanding of course that we are actually all to blame (Ill save that for another post) and we can't simply point the finger of blame at a small number of high profile figures, there are a few points that I feel the need to take issue with.

1) Capping CEO Salaries. As recently reported in the US, CEO's of those organisations queuing up for government help in the next round of bail outs will have their salaries limited to $500k. This caused some level of outrage with many saying it is totally unworkable and will lead to either 'an exodus' of or difficulty in hiring talent. This implies that the 'talent' resides in the executive team when actually there is more talent in the rank and file of an average organisation than in the boardroom.

Whilst I'm sure living on a $500k base is a hardship for your average Captain - see this article from the New York Times http://tinyurl.com/c7szvk - the issue is not the fixed base pay, it's in the variable element. Those in the spotlight have remuneration packages that consist of an 80% or more variable element that is based on 'performance' or achieving agreed objectives, many of which we now know were totally counter productive.

A base salary that makes up 10-20% of your take home? Sound familiar? Of course! Just look at your average shiny suited sales person and you see it in action. Many CEO's have remuneration packages structured like the most aggressive sales people and their behaviour patterns as we now see are almost identical. Leading experts on the meltdown in the US have identified this as one of the major contributory factors.

2) Attracting/retaining talent without bonus payments. Many, including Mr Hestor have commented on the importance of bonus payments in keeping and attracting the talented. Whilst its important to reward people accordingly, and I do have an empathy with people at the bottom of the employment food chain, I also think this justification is misguided.

To say talented people are attracted to roles, or stay in them largely because of the bonus on offer is arrogant. The wrong type of 'talent' maybe.

3) Getting rid of those that 'got us into this mess'. I laughed uncontrollably when I read that. Not only does it stink of blaming the lower ranks, but it begs the question: What are they going to do differently in their recruitment process to filter out the naughty boys and girls? Bugger all i suspect. Clear out a few sacrificial lambs and backfill with some new cannon fodder. Can i suggest culling of the top 50 in all our major banks instead.

Personally, this kind of justification is a sure sign of underlying guilt and a realisation that they got it wrong. We have all seen it before - when the guilty are well and truly caught out they have a tendency to spout the most ridiculous excuses to justify their behaviour and that is just what is happening here.

Quite where we will end up I don't know, but a part of me just wishes that those in the hot seat would just give up and come clean. Every single one of the leading bank CEO's had it within their gift to say enough is enough and to take make the decision that the government has made for them.

Imagine the PR bonus for RBS if they had come out and said that they can't justify paying £1bn in bonus and incentives when they have just put hard-working staff into the nightmare scenario of unemployment to save a paltry £65m. Unfortunately, they chose not to. What kind of example does that set for the rest of the us? Answers on a £50 note please.


  1. But the problem with paying lower bonuses is that everyone looks elsewhere - hence every banker in the City trying to get into Barclays at the moment. They're get to pick from the cream of the crop while RBS will be left with the dross.

    No £50 note though!

  2. I like your attitude! (20+ years in HR can do that to a person)