The Theory Of Bankers' Bonuses....

[Hyperduck Quack Quack]

The reason given for why top bankers are offered such obscenely huge salaries and bonuses is that in a competitive global market, you can only attract the most talented minds by offering huge rewards.

But surely there's a flaw in this theory. We've just been through the worst economic crisis since 1929, caused by the dubious banking practices going on under the noses of people who were paid huge salaries and bonuses.

From this I can draw two alternative conclusions:

1) That the huge salaries and bonuses were irrelevant as the bankers still messed up the global economy, or ....

2) The bonuses weren't high enough so they didn't attract the very best brains into the business

My theory about why bankers get such huge sums is the 'take the van home' syndrome. A van driver might see taking the van home at night and weekends as a perk of the job. His employer might even allow the driver to use the van for his own purposes occasionally.

Well, it's the same with bankers. Their business is money, and so being legally allowed to dip their very big hands into the very big and very full till is just a perk of the job.

Edited January 17, 2011 by Hyperduck Quack Quack

[blackgoose]

The reason the star bankers get a lot is the same reason that footballers get a lot - they can make a difference on huge sums of money.

Take a big M and A deal - it might be 5 billion deal, and the bank arranging it might get 20 million in fees it. The bankers with the most contacts will then be at a premium to which banks are willing to pay a few million for.

[mightytharg]

The reason given for why top bankers are offered such obscenely huge salaries and bonuses is that in a competitive global market, you can only attract the most talented minds by offering huge rewards.

The reason why bonuses have been high is because the banks often make large profits and these are shared between the owners and the workers who actually make the money. This boosts the economy as the traders pay excessive taxes and buy luxury goods.

A new trick is being tried. The banks' foreign owners can use a tame press to whip up opposition to the bonuses. Then they can keep nearly all of the money instead of it being recycled into the economy by the people who have earned it.

It's a clever scam and seems to be working...

[NW11]

Being a City trader is like being Marty McFly with a Delorean, being able to bet on money borrowed and won in the future and being able to bring it back and invest it in the present/past. Unfortunately those winning bets dont seem so see rock solid now but we have already spent the money. Uh Oh!

Edited January 17, 2011 by Earthling10

[Stars]

The reason why bonuses have been high is because the banks often make large profits and these are shared between the owners and the workers who actually make the money. This boosts the economy as the traders pay excessive taxes and buy luxury goods.

A new trick is being tried. The banks' foreign owners can use a tame press to whip up opposition to the bonuses. Then they can keep nearly all of the money instead of it being recycled into the economy by the people who have earned it.

It's a clever scam and seems to be working...

Does anyone have a counter to this argument?

Splendig ver thrig

[Georgia O'Keeffe]

Does anyone have a counter to this argument?

Splendig ver thrig

nope, seems rock solid

[Britney's Piers]

To make the rich work harder you pay them more. To make the poor work harder you pay them less.

[Alan B'Stard MP]

Does anyone have a counter to this argument?

Did they decide this at the AGM?

[mirage]

The reason why bonuses have been high is because the banks often make large profits and these are shared between the owners and the workers who actually make the money. This boosts the economy as the traders pay excessive taxes and buy luxury goods.

A new trick is being tried. The banks' foreign owners can use a tame press to whip up opposition to the bonuses. Then they can keep nearly all of the money instead of it being recycled into the economy by the people who have earned it.

There is no evidence that the increasing share of GDP accounted for by finance adds any real value to the economy. It may well do harm, by consuming productive resources (e.g. clever graduates). It certainly increases cost of financial services to the rest of the economy, by definition.

The fact that bankers are very successful at extracting rent from other parts of the economy, particularly given that it is very far from an ideal free market, is not an argument in favour of letting them keep any of it. And relabelling it as "making" money doesn't change anything.

It's a clever scam and seems to be working...

Your argument works just as well for the owners as for the employees. Why should the just fruits of all that hard-won capital not be enjoyed by the owners and allocators of it? They are the ones taking the risks. Why should they not seek to employ managers at the lowest possible cost?

The problem with punitive bonus taxes is that it is true they are a bad idea in principle. But then in principle it would be a good idea if we had a free market where the people extracting huge rewards would also shoulder the risk. And where huge rent-seeking based on crony capitalism and a playing field that is not just unlevel, but located in the Himalayas, was the exception rather than the norm.

[NW11]

Let me give it a shot. Balance sheet. An asset can be worth a million pounds or worthless. Its either a big black hole or the gift that keeps on giving. It can be used to substantiate any audit. That's why on any given rise you have to make a call, do I believe what the markets are saying and invest or have they all been caught up in a frenzy in which case I need to cut out my profits and run for the hills.. In the mean time its a great mechanism for bankers to justify huge profits on portfolios and thus cream their bonuses. The only problem is that the assets and thus profits are worthless but the bonuses paid out are oh so real.

Edited January 17, 2011 by Earthling10

[Tiger Woods?]

Does anyone have a counter to this argument?

Splendig ver thrig

Research suggests large bonuses are likely to impair performance:

http://blog.ted.com/2010/05/31/dan_ariely_asks/

In a world where the bonuses weren't on offer, don't you think that most of these guys would be happy working for a fixed salary of £200,000? Most senior surgeons in the NHS would be very happy to receive that sort of cash. Last time I checked, we wanted the best people working as brain surgeons. Why don't they seem to need million £ bonuses?

(Having said that, I know a couple of people who dropped out of med. school to become bankers.)

[Tiger Woods?]

Your argument works just as well for the owners as for the employees. Why should the just fruits of all that hard-won capital not be enjoyed by the owners and allocators of it? They are the ones taking the risks. Why should they not seek to employ managers at the lowest possible cost?

+1

[shipbuilder]

Let me give it a shot. Balance sheet. An asset can be worth a million pounds or worthless. Its either a big black hole or the gift that keeps on giving. It can be used to substantiate any audit. That's why on any given rise you have to make a call, do I believe what the markets are saying and invest or have they all been caught up in a frenzy in which case I need to cut out my profits and run for the hills.. In the mean time its a great mechanism for bankers to justify huge profits on portfolios and thus cream their bonuses. The only problem is that the assets and thus profits are worthless but the bonuses paid out are oh so real.

This is roughly similar to what I was going to say - how can the owners of the banks be keeping the money for themselves if the banks are in reality insolvent? Bonuses are a way of monetising wealth that isn't actually there - how can the owners of the banks do that? Is the idea that the bonuses reduce the bank's share value?

[Tricksy]

Your argument works just as well for the owners as for the employees. Why should the just fruits of all that hard-won capital not be enjoyed by the owners and allocators of it? They are the ones taking the risks. Why should they not seek to employ managers at the lowest possible cost?

They do.

[Reck B]

The reason given for why top bankers are offered such obscenely huge salaries and bonuses is that in a competitive global market, you can only attract the most talented minds by offering huge rewards.

But surely there's a flaw in this theory. We've just been through the worst economic crisis since 1929, caused by the dubious banking practices going on under the noses of people who were paid huge salaries and bonuses.

From this I can draw two alternative conclusions:

1) That the huge salaries and bonuses were irrelevant as the bankers still messed up the global economy, or ....

2) The bonuses weren't high enough so they didn't attract the very best brains into the business

My theory about why bankers get such huge sums is the 'take the van home' syndrome. A van driver might see taking the van home at night and weekends as a perk of the job. His employer might even allow the driver to use the van for his own purposes occasionally.

Well, it's the same with bankers. Their business is money, and so being legally allowed to dip their very big hands into the very big and very full till is just a perk of the job.

Yep, proximity to the product.

If I worked in a drinking yoghurt factory, I'd rarely suffer from a bloated tummy.

Edited January 17, 2011 by Reck B

[shipbuilder]

Research suggests large bonuses are likely to impair performance:

http://blog.ted.com/2010/05/31/dan_ariely_asks/

In a world where the bonuses weren't on offer, don't you think that most of these guys would be happy working for a fixed salary of £200,000? Most senior surgeons in the NHS would be very happy to receive that sort of cash. Last time I checked, we wanted the best people working as brain surgeons. Why don't they seem to need million £ bonuses?

(Having said that, I know a couple of people who dropped out of med. school to become bankers.)

To a group of sociopaths, money is everything - their worldview has infected/is infecting the rest of us. The idea of doing something useful to mankind has become secondary to an empty quest for wealth. The formula of productivity producing wealth turned on its head. The very source and foundation of the 'something for nothing' culture - wealth without creation or production, printing money, rent seeking, fame without talent etc. etc.

[Realistbear]

The reason given for why top bankers are offered such obscenely huge salaries and bonuses is that in a competitive global market, you can only attract the most talented minds by offering huge rewards.

But surely there's a flaw in this theory. We've just been through the worst economic crisis since 1929, caused by the dubious banking practices going on under the noses of people who were paid huge salaries and bonuses.

From this I can draw two alternative conclusions:

1) That the huge salaries and bonuses were irrelevant as the bankers still messed up the global economy, or ....

2) The bonuses weren't high enough so they didn't attract the very best brains into the business

My theory about why bankers get such huge sums is the 'take the van home' syndrome. A van driver might see taking the van home at night and weekends as a perk of the job. His employer might even allow the driver to use the van for his own purposes occasionally.

Well, it's the same with bankers. Their business is money, and so being legally allowed to dip their very big hands into the very big and very full till is just a perk of the job.

The Bible says not to muzzle the Ox while it is treading out the corn. The Banksters are just being good followers of the Book.

Problem is, the OX only eat enough to keep them alive and don't store up for a pension or a Bugatti.

[Charlie The Tramp Returns]

The Bible says not to muzzle the Ox while it is treading out the corn. The Banksters are just being good followers of the Book.

Amen, may the good **** smile down upon them.

[the flying pig]

the starting point for why bankers earn so much is that, as an activity, investment banks generate a huge amount of revenue per employee. it takes a hell of a lot of, er, hairdressers' time to generate £100m but a bank, who essentially makes money by skimming off a little [or not-so-little] slice of profits made by a firm in the real economy, can make the same amount using a fairly modest number of man hours, a bit of button-pressing and palm-greasing here and there is all it takes really.

from high revenue per employee it's a fairly short [aided in no small part by weak inter-bank competition] step to high profit per employee

add a dash of a weird insider/old boy's network and shareholder inactivity and you're there at skyscraper-high pay per employee.

Edited January 17, 2011 by the flying pig

[wonderpup]

If the bankers were only risking their own or their shareholders and investors wealth and well being I could not care less what they earn.

But as we know now that's not how it works- they take the risks, keep any gains and we take the losses when they come.

The bankers have become little more than gangsters running a protection racket and threatening to take down the system if anyone tries to stop them.

[NW11]

This is roughly similar to what I was going to say - how can the owners of the banks be keeping the money for themselves if the banks are in reality insolvent? Bonuses are a way of monetising wealth that isn't actually there - how can the owners of the banks do that? Is the idea that the bonuses reduce the bank's share value?

The banks are insolvent. Barclay's is not close to worth £3 per share. They're holding assets are peak prices yet withholding them from the market. The reason they're still standing is the pretence that their solid assets (your homes) are worth more than their debts. They're not. The banks, property developers, mortgagees, the government are all hoping to ride this storm out. People will lose their jobs and will default on their mortgages and banks will loses out but as long as they hold on to their assets valued at peak prices and refuse to auction them off they're laughing as the government will continue to pump liquidity into them to make up for any lost revenue. If they were forced to sell as in the US, we'd also be seeing 75% drops. Bankers will continue to receive their bonuses while they banks continue to 'demonstrate' their solvency. It is all a pack of lies. TSH yet to hit the fan.

[mightytharg]

Yep, proximity to the product.

If I worked in a drinking yoghurt factory, I'd rarely suffer from a bloated tummy.

Now I'm confused. Don't you like yoghurt?

Or are you making some bizarre point about having more self-restraint than the traders?

Back on topic. My point wasn't about whether the banks should or shouldn't make lots of money. I was just questioning whether you were being manipulated into being against bonuses. I'm also suggesting that Britain is better off if the traders are paid a fair share compared to the owners (who are taxed at a lower rate and less likely to spend their money in the UK).

[shipbuilder]

Now I'm confused. Don't you like yoghurt?

Or are you making some bizarre point about having more self-restraint than the traders?

Back on topic. My point wasn't about whether the banks should or shouldn't make lots of money. I was just questioning whether you were being manipulated into being against bonuses. I'm also suggesting that Britain is better off if the traders are paid a fair share compared to the owners (who are taxed at a lower rate and less likely to spend their money in the UK).

Can you explain your point further? By what mechanism are the owners paid?

[pandora's box]

I'm also suggesting that Britain is better off if the traders are paid a fair share compared to the owners

Britain will be better off when, and only when, the ponzi scheme which is the banking system collapses, and the perpetrators are brought to justice.

[mightytharg]

Can you explain your point further? By what mechanism are the owners paid?

The owners are paid via dividends and capital gains. So the tax take from them is mostly the 28% (or whatever) corporation tax. They'll likely spend the money at home so no benefit to the UK economy.

The traders would endure the 50% tax rate, 20% VAT, 12% National Insurance and so on, plus whatever bonus taxes they have and would spend money in the UK.

So it's in the UK's interest if the balance is more towards the trader and less towards me with all my Goldman Sachs shares.