There are a lot of myths and misunderstandings about the bank’s big bonanza. Lots of people are going to extrodinary lengths to convince us the current banking system is a good thing. Well, we disagree. Here’s why…
Myth 1. After the crisis, the banks will begin to regulate themselves.
Actually, there’s no collective sense of shame in the City. Post bail-out, bonuses are back, and some of them are bigger than ever, because there are fewer people to share the money with.
In the first half of 2009, the top five firms set aside about $61 billion to cover compensation and benefits for their employees. A year earlier, the total for those firms, plus the big banks they subsequently acquired, was about $65 billion; in the first half of 2007, the figure was $77 billion. Per employee, the payouts may exceed previous years since the firms have collectively eliminated tens of thousands of jobs.
Wall Street Journal
Myth 2. Wealth trickles down.
If it does, it’s a rather pathetic trickle. Bank bonuses don’t tend to get spent on the nation’s high streets. They get spent on Ferraris and villas at Chamonix. And of course, many of the highest earners don’t pay a great deal of tax, so their good fortune isn’t helping us build more schools and hospitals, or pay for equipment for our troops. Even though it’s our money that has saved the financial system from collapse.
How could we spend the money instead?
Myth 3. Bonuses make people work harder.
Actually, bonuses make people want to earn bigger bonuses. There’s a great deal of scientific evidence to show that offering people bonuses doesn’t make them smarter or better able to solve business problems. Not surprisingly, their minds are on the bonus, not the business.
Dan Pink’s TED talk on how incentives make us worse at our jobs
Ex-management consultant Matthew Stewart on the Management Myth
Myth 4. Rich bankers give generously to charity.
On understanding material needs:
Lord Griffiths, vice chairman of Goldman Sachs International, said: ‘The main barrier is materialism. By the time you’ve got a car or two and a yacht and maybe a second home in the south of France, you can see the bills add up . . . Mammon can easily take over.’
Financial Times, December 2007
Bless! It breaks your heart, doesn’t it? And things can only have got tougher for the poor chap since. Click here to read Charity plea to city high fliers, to understand why most keep most of their bonuses for themselves.
Myth 5. The people who manage these businesses must see a very good commercial reason for paying out so much in bonuses?
Yes, they surely do. Because the people who predominantly get the money are… themselves!
Myth 6. The banks are well managed and need big incentives to retain the best.
If the banks were well-managed, and if they had the very best leadership, would we have just lived through the biggest financial crisis in history? We’re no experts. So read what Nobel-prize winning economist Joseph Stiglitz has to say.
Myth 7: We can trust the government to regulate for us
So far, there have been some encouraging noises. But there’s no definite sign of this happening. We believe that customers need to do their bit to show that we want this to happen.
What’s more, and forgive us for being cynical, but there’s traditionally been a ‘revolving door’ between the senior management at banks and the government institutions who manage them.
