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03 February 2012
Is bonus bashing getting out of hand?

Is bonus bashing getting out of hand?


By Ben Turner @ 13:37 :: 1222 Views :: 3 Comments :: Article Rating
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This week there have been some significant developments in the banking sector and this industries relationship with bonuses. Though SalesPro concerns itself with all industry sectors, the concept of bonuses, performance related pay and commission should be a major issue for any sales organisation. 

Stephen Hester

There are three main reasons why this week’s events give a reason to be concerned for both sales organisations and the wider business community. The first, involving Stephen Hester giving up almost a million pounds in bonus is concerning for this political, mob leading policy of auctioning off the key positions within our country to the lowest bidder.
 
The FA have decided to pay a salary of £6m to an Italian man to run our football team, are we to suggest that someone in charge of an institution such as RBS is worth a third of that value? On top of this, his bonus payments were in shares, therefore linked with the performance and profitability of one of the country’s key assets. If Stephen Hester does well, it means that every person in the country will have also done well.
 
Stephen Hester did not have to give up his bonus, in fact I would prefer for our top executives to get out of bed each morning with an incentive that means that the more the country benefits, the more the individual does. When he wakes up over the next weeks, will he be jumping out ready to increase the share value of UK PLC’s most controversial assets, or will he have a second eye on the FT looking for the next, less hassled, job opportunity.
 
Fabio may well be getting a bigger bonus if England win the Euro Championship, but it appears that it will be considerably more than Stephen Hesters should he turnaround a bank that needed a £45bn bailout into an profit delivering asset.
 

Fred Goodwin, Sir?
 
Which brings us to the next concern, Sir Fred Goodwin is a ‘Sir’ no more, whether we agree with the purchase of ABN Amro, whether he should be the fall guy for all the activities of the banking sector is all to be debated, but the real question surely has to be -  Should Sir Fred, be punished?

For years the politicians of the UK lorded over the Fred Goodwin’s of this world with the billions of profits and associated tax revenue that was gained. The City ruled the UK and the politicians loved it. Now the lynch mob is out and the fall guy has been chosen, he’s lost his ‘Sir’ and little will change on the back of it, a cowardly last dig as pathetic as when the hyena’s crawled around Rupert Murdoch for a last dig.
 

The Bonus Culture

The final reason, and one that should capture the attention of the sales profession, is the very notion of bonuses being a bad thing. Anyone who has read Peter Jones’ book “Tycoon” would know that he looks for every part of the business to be on a bonus scheme, every part of the business can be incentivised and rewarded for exceeding performance.

Surely this structure is what makes businesses perform, even banking! When an investment banker is able to generate an additional million pounds onto the bottom line of the business, shouldn’t he be rewarded? Likewise the great thing about bonuses is that if he doesn’t achieve the target, he doesn’t get paid.

The alternative is laughably being put into place, a prime example of why people who do not understand business should not have a say in how they are run. The average salary of these banking sectors is going up drastically at the moment, which is completely understandable; these people do need to be remunerated for the role and revenue they generate. In essence, the effect of not paying bonuses is to reward mediocrity!

The problem now is that pay is mandatory part of salary, they earn no matter what, not adjusted according to performance. The politicians have only managed to achieve a worst of both worlds model, people get paid the same amount of money for under performance as over performance, where is the incentive to over perform? This is the exact opposite of what was looking to be achieved.

So how about the solution? I’m no expert in the intricacies of the banking sector, but the biggest problem with these bonus scheme’s were that they were bad bonus schemes, when someone gets paid for bad performance then the bonus scheme is bad. Likewise when someone is given a bonus for good performance and the model works, then this is a good bonus scheme, the key words and difference between the two bonus schemes being “good” or “bad”.

The headlines aren’t so attractive anymore; ‘Bad bonuses are Bad!’ they may read, pretty obvious to most people!
So the most important reason that should send a shudder through any professional sales organisation is the disregard for the commission structures of the individuals lower down the pecking order, the mis-selling of financial products is surely a more concerning arena?

When we talk about good and bad bonuses, the mis-selling and paying out for poorly constructed deals is an area that will have as much impact on this sector than any. CICA have recently been fined £2.8m for poor trading practices, and you don’t need to watch the TV for too long to see the companies looking to help you get compensation for the mis-selling of credit cards and PPI
over the last 10 years.
 
Perhaps this is why the bonus culture is being criticised, not because performance related pay is bad, but because it represents
the poorly structured, short term focussed deals that are being rewarded. This isn’t the job of government to manage though, faith in the financial sector is waning for these very reasons, it’s up to these businesses to promote their own sales and bonus excellence to help achieve the long term growth that the short term mistakes are jeopardising.
 
Bonuses are a good incentives for business, but in simple terms, only if the bonus scheme is good, bad bonus schemes do happen to be bad!
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