Bonuses Are Nonsense

Some years ago, I had the misfortune to work for a complete imbecile. He proposed that my department be paid a bonus based on its profit. I objected to this on several grounds, the primary one being, 'To offer us bonuses is insulting. It suggests that we are not working as hard or as well as we could.'

There are many other objections to bonuses, but this is, I believe, the principal one. It doesn't worry high-flying bankers because, while they may be working as hard as they can, they can always find a new way to swindle their customers or the government. By offering them bonuses in such circumstances is to encourage them to do so.

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Is David Walker the Right Chairman for Barclays?

Sadly, the answer must be an emphatic no. Sir David has shown himself to be completely divorced from reality by suggesting that misselling of interest rate swaps and payment protection insurance is 'the consequence of not charging for bank accounts'.

This assertion is a nonsense on several levels: (1) everyone is charged for their bank accounts, by the vast spread between interest paid and interest charged and by charges on transactions; (2) before the credit crunch the banks were making vast profits (largely unseen by their shareholders as they were creamed off in bonuses) without, for the most part, having transparent monthly charges for accounts; and (3) Lloyds, which has charged many of its customers a monthly fee for its current accounts was also one of the worst offenders in the PPI misselling. Misselling was driven not by necessity but greed.

Sir David suggested to the Labour government that banks should have to disclose how many of their employees earned over £1 million. However, he warned that naming them could drive 'talent' abroad. This is complete nonsense. Banks are allowed to lend about 10 times as much as their combined Tier 1 and Tier 2 capital. You could pick the most stupid person off the street (even a politician) and let him loose as a senior decision-maker at a bank and (s)he would be hard put to lose money. The 'talented' individuals who ran, and for the most part still run, our banks, however, managed to lose billions and had to be bailed out by the government. Barclays, of course, tapped Qatar's sovereign wealth fund instead, but at a massive cost to its existing investors (including the pension funds).

Marcus Agius, the outgoing Chairman, says that Walker's appointment will scotch any lingering expectations that the bank will be split into separate investment  and retail companies. This is to be regretted, as is the government's failure to force a split of this nature in all banks. The idea that bankers can be trusted to enforce a split between the two arms of the banking operations would be risible if it were not so frightening in its naivety. Without a complete split, it is only a matter of time before one or more of the high street banks will have to be rescued again.

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