BANK BONUSSES

I am having problems with the idea of bonusses. I am having a particular problem with the Royal Bank of Scotland, now 84% owned by the U.K. Government (i.e. the taxpayer), paying out £1,3 billion in bonusses to its staff, despite the fact that it lost £3,6 billion in 2009.

The word "bonus" has connotations - to me, at least - of something extra and special. An extra payment for a special effort. I can't see how a company that makes losses can justify any bonus. The fact of the matter is that any bonus paid merely increases the loss made.

If we were in any other industry except finance, then this would be self-evident. However, things work differently in the City. As RBS' chief explains it, you have to pay bonusses in order to retain productive staff. Even when the company makes a loss, and is state-owned.

I think that this is self-serving tosh. It is time for banks' Boards and senior management to remember that they ultimately work for shareholders, not employees. Employees should be well remunerated, if the company can afford it; and there is nothing wrong (indeed, quite the opposite) with giving employees more when the company has more. However, employees should not be entitled to bonusses when the company patently cannot afford them. The concept of "guaranteed bonusses" is an oxymoron, that should be ditched. And if employees say that they will walk unless they get them, then that bluff should be called; let them walk.

More on this later ...

Walter Blotscher