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Why Bonuses Should Be Abolished

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How Misguided Incentives Negatively Affect Productivity and Well-Being

Here’s where things got interesting. Glucksberg ran the same experiment again but removed the monetary incentive. While conventional wisdom tells us that monetary incentives improve performance, Glucksberg found just the opposite: those who weren’t incentivized accomplished the task three and a half minutes faster.

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Assuming this is correct, banning it wouldnt work. The greed of those seeking bonuses would just leed to a significant proportion of them moving somewhere that does give a bonus.

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Assuming this is correct, banning it wouldnt work. The greed of those seeking bonuses would just leed to a significant proportion of them moving somewhere that does give a bonus.

How could they move somewhere that gave them a bonus if it was banned?

"A bonus is the means by which the profit from fraud is conveyed from the company to the individual".

That is why it should be banned. My quote by the way.

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Assuming this is correct, banning it wouldnt work. The greed of those seeking bonuses would just lead to a significant proportion of them moving somewhere that does give a bonus.

The implication is, though, that an investment bank that didn't award bonuses would outperform one that did, and not just because it would save a huge amount of money; the employees would perform better since they would be focused on the job in hand (i.e. being good investors), not their bonus number.

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How Misguided Incentives Negatively Affect Productivity and Well-Being

Here’s where things got interesting. Glucksberg ran the same experiment again but removed the monetary incentive. While conventional wisdom tells us that monetary incentives improve performance, Glucksberg found just the opposite: those who weren’t incentivized accomplished the task three and a half minutes faster.

I'm not surprised at that result at all. When designing incentive schemes one quickly learns that not everyone is driven entirely by money. A few are more driven by money, and the trick in offering those few a financial incentive is to ensure the behaviour being rewarded genuinely brings about a benefit to the business. It requires real thought and care to ensure the incentives are not misguided.

Its not just bankers who get a bonus. In other sectors, where bonus schemes are perhaps better organised, they also serve another purpose. A senior manager who gets some fraction of their renumeration as a 'bonus' is in effect being paid a variable salary - dependant upon the profitability of the business.

When the business is doing less well the cost of the senior management falls. This has some merit - after all if the manager is going to cut costs in the business its only reasonable that thier 'cost' is also cut.

Of course this assumes the measurement of the business is sound, the total package is sensible, and the bonus is not just an excuse for fleecing the business. There are instances like that - they don't hit the press because the amount of the bonus is not a silly number.

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Banning/taxing works great in a closed economy, but last time I checked we don't live in north korea or the 1600s.

Would you be happier if your bonus was reduced to less than 6 figures?

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Banning/taxing works great in a closed economy, but last time I checked we don't live in north korea or the 1600s.

We should get the shareholders of these banks to act in their own rational self-interest to stop the payouts.

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The problem and confusion lie in the understanding of "bonus".

A bonus sounds like something extra given for additional work over and on top of what is expected. In Investment Banking terms that isn't what it means, it is simply remuneration for achieving certain objectives.

If you want someone to endure the down sides of investment banking (pressure, stress, long hours) then you have to pay them well.

It makes more sense for an investment bank to pay someoone who achieves their objectives than someone who doesn't.

Therefore the "bonus" structure exists as an alternative to paying people a fantastically high salary and then trying to get rid of them when they fail to do what you want them to.

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We should get the shareholders of these banks to act in their own rational self-interest to stop the payouts.

As a shareholder I would agree but for different reasons. The bank would p*ss off to Hong Kong, carry on giving bonuses, and reduce it's cost relative to being in rippoff Britain.

iirc, HSBC shareholders had the same thoughts a while back when new restrictions were mooted.

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We should get the shareholders of these banks to act in their own rational self-interest to stop the payouts.

How on earth would you be able to do that? Most of the votes are stolen by institutions who manage shares on behalf of others. Your pension fund, or your Unit trust or investment trust, or even capital for insurance companies, stuff which is voted on by a few on your behalf, makes up the decisive votes.

I have often called for changing the law, so only the beneficial individual holders of shares can vote. That would put a stop to a lot of this nonsense.

As it is, a few wise boys get to cast millions of votes paid for by others, on whatever it is that they see as being in their interest, not the true beneficial owners of the shares.

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The problem and confusion lie in the understanding of "bonus".

A bonus sounds like something extra given for additional work over and on top of what is expected. In Investment Banking terms that isn't what it means, it is simply remuneration for achieving certain objectives.

If you want someone to endure the down sides of investment banking (pressure, stress, long hours) then you have to pay them well.

It makes more sense for an investment bank to pay someoone who achieves their objectives than someone who doesn't.

Therefore the "bonus" structure exists as an alternative to paying people a fantastically high salary and then trying to get rid of them when they fail to do what you want them to.

Didn't read the article.

Well done!

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If you want someone to endure the down sides of investment banking (pressure, stress, long hours) then you have to pay them well.

Of course, there is nothing stopping you from employing more people and thereby reducing the long hours and stress.

It makes more sense for an investment bank to pay someone who achieves their objectives than someone who doesn't.

Might look that way, the research suggests otherwise (at least in the way the bonuses are currently done). The pressure generated by the need to get a bonus reduces performance below the level you'd get with no bonuses.

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How on earth would you be able to do that? Most of the votes are stolen by institutions who manage shares on behalf of others. Your pension fund, or your Unit trust or investment trust, or even capital for insurance companies, stuff which is voted on by a few on your behalf, makes up the decisive votes.

I have often called for changing the law, so only the beneficial individual holders of shares can vote. That would put a stop to a lot of this nonsense.

As it is, a few wise boys get to cast millions of votes paid for by others, on whatever it is that they see as being in their interest, not the true beneficial owners of the shares.

I agree.. the whole concept of the limited liability, dispersed-shareholder ownership company seems abused to the point of disintergration nowadays.

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How Misguided Incentives Negatively Affect Productivity and Well-Being

Here's where things got interesting. Glucksberg ran the same experiment again but removed the monetary incentive. While conventional wisdom tells us that monetary incentives improve performance, Glucksberg found just the opposite: those who weren't incentivized accomplished the task three and a half minutes faster.

Interesting piece. I think every parent knows this though; you want your child to grow up, you go easy on the rewards.

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I dont think there is a problem with bonuses - as long as there is the other side of the bargain in place. Ying and Yan and all that.

These directors get a massive payout AFTER they ****** a company over and bring it to its knees ? Why are none of these guys on zero salary and all their pay is based on how well the business does ? It works for door to door salesmen - so surely the cream of the crop at the top of huge businesses can do the same. Surely they are worth it...:D

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Of course, there is nothing stopping you from employing more people and thereby reducing the long hours and stress.

Actually there might be. Investment Bank type tasks are cerebral, and as a result can't easily be dropped by person A and picked up by person B or shared between team A, B and C.

Might look that way, the research suggests otherwise (at least in the way the bonuses are currently done). The pressure generated by the need to get a bonus reduces performance below the level you'd get with no bonuses.

The research doesn't mention Investment Banking (you see, I did read it Injin) and I don't think that applies in what I perceive to be an Investment Banking context (although I'm not an investment banker...). Pressure of making correct decisions to time exists in and of itself. By taking away the bonus element you're taking away the requirement for the decisions to be correct, sure that might make everyone happy and less stressed but:

A) If you pay people a high salary to make decisions with no bonus how do you weed out those that can't do it?

B) If you don't pay people a high salary to make decisions why would anyone want to subject themselves to the hours etc?

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Actually there might be. Investment Bank type tasks are cerebral, and as a result can't easily be dropped by person A and picked up by person B or shared between team A, B and C.

The research doesn't mention Investment Banking (you see, I did read it Injin) and I don't think that applies in what I perceive to be an Investment Banking context (although I'm not an investment banker...). Pressure of making correct decisions to time exists in and of itself. By taking away the bonus element you're taking away the requirement for the decisions to be correct, sure that might make everyone happy and less stressed but:

A) If you pay people a high salary to make decisions with no bonus how do you weed out those that can't do it?

B) If you don't pay people a high salary to make decisions why would anyone want to subject themselves to the hours etc?

It doesn't have to mention "investment banking" as people are people are people are people.

There is no magic special ubermensch for whom the results are different. You pay people heavily based on performance and they do worse than if you don't pay them at all!

Just pay them a flat wage.

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A) If you pay people a high salary to make decisions with no bonus how do you weed out those that can't do it?

B) If you don't pay people a high salary to make decisions why would anyone want to subject themselves to the hours etc?

A; The same ways that any other employer does, I should imagine.

B: You keep trotting this out in one form or another, but there are plenty of other jobs with at least equally long hours and/or at least equally stressful decision making required, that dont pay anything like as much, so this is clearly a fallacious argument.

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There is a place in business for performance related bonuses provided they are not paid against (or heavily weighted towards) the sales of new products.

Weighting should be towards how what you have sold performs over the mid to long term.

Unfortunately, no-one wants to wait 5 years to see the fruits of their 'labour' (labour in financial sector = drawing up increasingly over-complicated trading agreements and pretending they are 'clever' and 'special' not scammers and charlatans) and bonuses are paid on instant results regardless of the total ******-up they create for anyone and everyone in society.

There must be widespread imprisonment and a total clear-out of the financial service sector if we are to move on from this.

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A; The same ways that any other employer does, I should imagine.

B: You keep trotting this out in one form or another, but there are plenty of other jobs with at least equally long hours and/or at least equally stressful decision making required, that dont pay anything like as much, so this is clearly a fallacious argument.

A - Rubbish! If you pay someone £20k pa to process application forms and they can't/don't the loss to the business is far less than if you pay someone £5m to make the company £100m and they can't/don't.

B - Like what? The only one I can think of is Junior Doctor and they are aiming for the low hours high pay world of consultant (and are paid pretty well anyway).

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It doesn't have to mention "investment banking" as people are people are people are people.

There is no magic special ubermensch for whom the results are different. You pay people heavily based on performance and they do worse than if you don't pay them at all!

Just pay them a flat wage.

Simply not true, and my first post which you perhaps missed the point of explained that a study into rewards for extra achievement is not applicable to what is effectively a discretionary remuneration environment like Investment Banking.

When an investment banker starts the year they expect to earn £5m (for arguments sake). This explains why they are so enraged to lose their bonus, something many on here didn't get to grips with. If you just paid them the basic they wouldn't do the job at all.

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A - Rubbish! If you pay someone £20k pa to process application forms and they can't/don't the loss to the business is far less than if you pay someone £5m to make the company £100m and they can't/don't.

B - Like what? The only one I can think of is Junior Doctor and they are aiming for the low hours high pay world of consultant (and are paid pretty well anyway).

A: I'm not talking about an admin on a sub-national average salary as I am sure you know. I am talking about just about every other senior manager or exec in just about every other organisation in the country, and the processes used to select them and manage their performance.

B: How dare you compare some city spiv to someone who has to make life and death decisions. As to life and death decisions, long hours and stress for very little money, lets start with a humble squaddie over in Afghanistan as an example, shall we?

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  • 343 Brexit, House prices and Summer 2020

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      • up 5%



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