Same old, same old, or differently? – in the City. (22/12/09)

In the City, conversations about bonuses at this year end will certainly be different. No doubt ingenious ways to dodge the extra tax will be found for those people deemed worthy of exceptionally large ‘compensation’ packages. Perhaps this will include more deferral and equity, but essentially it is the same old corporate financial reward system which bears little relation to either the reality of entrepreneurial risk, or to genuine, sustainable motivation of those involved. The clue is in the very term ‘compensation’! For what – being a banker?

It’s possible that the City faces a tectonic upheaval in its operating conditions, as has been seen in, for example, the music business in recent years, or in Western industrial manufacturing in recent decades, or agriculture many years before that. History is littered with massive change. What could be the big shock to cause such a thing in finance – Government regulation?; increased competition for lower levels of business driving down returns?; a velvet revolution from issuers and investors fed up with excessive fee levels?; a drain of talented people who can no longer hold their head up with pride in public?

Who knows. But if it does happen, it appears likely that, seemingly lacking any sense of humility for the catastrophic events of the past couple of years, or connection with the rest of the economy or society, the rainmakers in the City who are entrenched in the bonus culture won’t know until it’s too late.

Or they could start to think differently: perhaps they could explore other ways to motivate and retain key talent (like many other businesses do) – supporting achievement, responsibility, recognition and growth for what they are, rather than being determined by commission. It’s a lot cheaper, and quite possibly a lot better!