I do not need a professional regulatory body to tell me what is unethical or incompetent practice. As a responsible professional I should know and act accordingly. If it is argued that the level of responsibility on someone's shoulders is so big that it justifies a remuneration in the range of millions, I do indeed expect it to rest squarely on their shoulders --no cop-outs, no sharing of blame (unless there is also a sharing of the rewards). 1. People in the FSI do not get replaced on a whim because "someone better comes along". Today's golden child can screw up to be tomorrow's Nick Leeson or Kweku Adoboli. Someone better has to have a long and proven track record. 2. If they live to work, why would they need the high financial incentives? And if you really want to see some people who live to work, check out the NHS or even better, your local charities. That would assume that capitalism is purely rational, and I would argue that it is not. It is all about incentives: what people want and what they are prepared to do for it. These are not rational cognitive processes. Humans fundamentally do not operate on a rational level. If anything the Credit Crunch is vivid proof of that. Are you saying that on a larger scale individual irrationalities are cancelled out and what you end up with is a system that is overall largely rational? I would strongly disagree with that; chaos theory tells us a very different story about how tiny idiosyncrasies can snowball into unexpected dynamics. Well, Julianmartin did (as an example). I just went along with it. We could also talk about other forms of speculation, investment and loans which are all a bit of a gamble to a more or lesser extent. I'm not talking about the average bank manager who just takes home a five figure salary like most of us. Does that include capitalism? Except that governments then step in to save the dodo. That is what pisses people off. There has been no natural selection because if the FSI goes down, the whole economy goes down. Such a protected Eden poses rewards without the risk and creates preening birds of paradise.
I have to disagree with this one, I actually just came back from a semester in Macau one of the largest gambling places in the world. And trust me people DO believe that they can win using some sort of tactic, and we are talking about people in very level of income and social status. Unfortunately due to this there are many that has lost their entire fortune, not because they are addicted to gambling but because they genuinely think that their luck/god/gods/ancestors/techniques will ensure that they hit jackpot. Sorry but this is straight up incorrect, while all the theories say the there is an magic "equilibrium" all these theories are based on preconceptions that are never met in the real world, just the existence of brands disprove many of these theories. you actually gave the best reasons why this never happens yourself:
Gah. What?! I thought you said bonuses don't work? That's pretty much exactly what I've been trying to say.....?
Capitalism is inherently rational. Rational in its most elementary sense - the ability to make a ratio: weighing the benefits vs costs or the value of one thing vs another (food vs tv). Actually, this is a response to scarcity and capitalism is the most efficient construct human society has manage to arrange to deal with scarcity. The nature of scarcity means there isn't enough around that people desire. Capitalism is the system that people make voluntary arrangements with each other using prices to communicate demand. The problem for some people with it is the that communication is not consciously predetermined (and some think it should be) but merely codified after the fact. Billions of people making billions of mutually beneficial arrangements is one the most natural and rational processes because it is not pre-arranged and it constantly remeasures the value of one thing vs another. Marx used this as a criticism when he observed that when two people's desires collide what results is something nobody wanted. Of course, he wanted to orchestrate this activity so at least one person's desires were satisfied, his (obviously the desires of the two people in his example didn't exactly match his). I consider the fact that people don't get everything they want but more of what they need as a virtue. I do agree with you on one point about sharing in both the profits and the losses. This is a key distinction that is lost in most modern arguments about capitalism. The balance is achieved from both the profits and the loses. We collectively learn so much more from the losses in a capitalistic society than the profits. But when the losers are bailed out at the expense of everyone else, it severs the lines of communication and poisons the water that needs to seek its own level naturally. I may want to live in a house by the beach more than anything (which is partly accurate) but I'm not willing to forsake everything else to make this a reality, this happens billions of times a day with everyone. I would consider it an irrational response to decide that I need to deploy power or the resources of other people to simply take what I want at the expense of others.
Where people go wrong is that they try to interpret the principle of reward and incentive within a rational framework. For instance, there are people who will rather deal drugs, with all its ensuing risks to life, limb and personal freedom, than seek a steady paying job, because it is perceived to be a faster, better rewarded career path. Of course rationally speaking the opposite is true, but from their subjective framework of experience you might be able to see where they are coming from. Many young people will rather find a job now, buy that car, get that pad, party all night, than knuckle down to a six-year university course incurring a significant debt because it may offer them better career prospects in the long term. It's all about delay of gratification, perceived ability to perform and perceived likelihood of reward in return. It's also about relativity of reward. I will happily clean toilets for £100.000,-- a year. Seriously. For £10.000,-- a year? Not so much. But if I was unemployed and destitute? I'd take it. We see a nice example of this in illegal (and even legal) immigrants who will do jobs under working conditions and for pay that the average Brit would not touch. Similarly if my colleague does the exact same job for substantially higher pay, I'd get annoyed and start slacking. If they do the same job for substantially less, I'd feel compelled to work harder to justify the higher salary. So if I earn, say, £500.000,-- a year with a £1million bonus, would I stress myself out even more and work even harder for a £2million bonus? Perhaps, but not as much as I would have to earn the first £1million. At a certain level of pay, you can afford to think of other things as more important than earning even more money. More time with your wife and kids, perhaps. The reward-incentive relationship curve kind of flattens. There is also the flip-side: what would happen if I did not work for the reward? Would I still receive it? Just how little work can I get away with? What working conditions am I prepared to tolerate for that? Research shows that 90% of work stress is caused by poor line management, not poor pay. Not all these decisions are rational. They are often highly subjective and emotional. People are not robots operating along linear mathematical functions.
You are making an assumption, or hoping, that ethics enter into big business. Occasionally they do, often they could, usually they don't. They, "bankers", are there to make the most money they can for "their" companies, like most employees in revenue generating jobs. They don't live business life in a nice cosy bubble of ethics, as well you know, whether you think it ethically right or not. Welcome to the real world where companies (usually) have to earn money to to stay in business rather than be funded (usually) by the tax payer! On a whim no, I didn't say they did. But failure to meet targets, screw up big time, younger people coming in working til 3 in the morning having started at 7am (depending on their specialism of course), etc. is a perceived and sometimes real threat. I see it all the time. You know very well the Nick Leesons of the world are extreme exceptions, principally down to woefully inadequate audit controls and bad management, and cannot be used as examples of the norm. Those in banking and finance who "live to work" are usually incredibly good at their job and work damn long hours (as above) so why should they not receive good remuneration in reward? Banks are not charities and employees are not their volunteers. Governments have had to step in because the regulators have done a p**s poor job of controlling the financial markets. They had the opportunity to do so, they did not do it. Edit: But no employer would value clean toilets at £100,000 a year because market forces would dictate they do not have to pay that amount for that job and the role is not contributing to revenue generation (directly). You obviously haven't worked in the highly competitive financial world if you think the above might apply. In the main they apply the same mindset to earning the first £500k as they do the last £500k. Banking, as in risk taking revenue generators, attracts people with that kind of mindset.
All this is true, but you need to take in account for limited options. For people in communities/societies that have very limited options, all the knowledge and information around them leads them more to the conclusion that a life of crime is a viable and rational decision (and it is). With no examples of long-term rewards around them, it is hard to incorporate what they don't know into their rational. In other words, what is your baseline for your rational choice? The other factor is morals which are inherently based on long-term thinking and historical experience. But even some morals, depending on what you are exposed to can lead to day-to-day moral thinking and rationalizations. No doubt that psychic rewards are, just that, rewards and they are rewards that many people don't incorporate into their rational decision making. I didn't until much later in life. Being a young father, entertaining my psychic satisfaction was not a reward I could afford to pursue at the expense of my young dependent children. However, after I had developed basic human capital in the workforce (which leads me to my next point), I could start incorporating psychic rewards in with my monetary rewards and make my own personal ratio of cost and benefits. You would clean toilets for £100.000 which is, quite frankly, irrelevant because it is not an option. It isn't an option because the laws of supply and demand prevent it from happening. In a capitalistic society, because it is voluntary cooperation, there would need to be a person out there willing to pay you that amount too. You have achieved a high level of human capital that allows you to do something that is higher in demand and also has higher pay than cleaning toilets. You had the human capital required to clean toilets 20 years ago before you were every qualified in the medical field, so are about 1 million other people in your society, there is a surplus of supply for people with toilet cleaning skills. In effect, you are divorcing the link of cause and effect regarding what toilet cleaning pays for your own sensibilities which is only relevant to your circumstances, not society as a whole, or at least only in the small ratio of your contrition to society.
I am arguing that if bankers justify their bonuses by the level of responsibility they carry, than they have to carry, and be accountable for it. All of it. The NHS doesn't live in a nice cosy bubble of ethics either, by the way. Difficult decisions and compromises about available resources vs human needs, indeed human lives have to be made all the time. We don't get bonuses for it. We are held personally accountable. Everybody is responsible for managing their own professional insecurity. You can't expect bonuses for it. Surely work is its own reward? A good professional, one who can handle the sort of responsibility that demands millions in remuneration, should not need a regulatory body to keep them in check. Else perhaps they should get the remuneration. I think you are missing the point behind that hypothetical example. No, but I have worked with clients who work in that world. Does that count?
It does illustrate that rationality is relative. Exactly: once money was off the table as a concern, rewards became less financial, even tangible, and more psychic. The same with any job. Once a person earns enough to stop worrying about money, other incentives come into play and become more important than even more money.
That's just plain naive (or facetious ) No they cannot be accountable for all of it, nor should they. Some of them you just couldn't trust to do so Example: http://en.wikipedia.org/wiki/Bernard_Madoff Your contract does not stipulate that you receive a bonus, I presume. If it did, you probably would You chose to work in an industry that is a publicly funded service that does not reward in that way. There's always the next life ... You're right The bankers don't receive bonuses for their insecurity but for achieving agreed revenue generation targets No
If they can't nor should, then they should not get bonuses at all. They are not entitled to them and it would encourage risk-taking behaviour that is outside of their capability and remit. I guess money is perhaps not the best incentive. Keep up. You justify bonuses by saying that the job carries a high responsibility, is hard work and has to earn money to justify its existance. I say that the NHS is exactly the same (right down to the generating revenue bit, or at least spending the money in a responsible, most efficient manner possible). You say that they have to make difficult ethical decisions. So do clinicians in the NHS. So how are these jobs special, really? But isn't that their job, for which they get paid a salary?
I don't want to get mired down in semantics or derail the discussion further. Just to argue the principle that the system is rational in it's most elemental sense, I could argue that it is almost hyper-rational. The fact that psychic rewards are incorporated doesn't change that. Now to argue that it runs on reason or logic is another matter. My point is one of rational processes. In response to Da_Rude_Baboon's accurate damning assessment of Goldman Sachs, he is dead right with one critical portion left out. For literally centuries lending money for purchase of land has proven the most stable way to create wealth. By the 20th century, the risk assessment had developed into a true science. This would have never have happened without the US government subsidizing the added risk of lending to non-traditional customers (sub-prime) using agencies like Fannie Mae, Freddie Mac and the FHA. In an effort to fulfill politically motivated promises, tax dollars were used to defer classically know risks. Once the jig was up, they were bundled and sold just as he said. Right now, these three agencies represent about $15T in liabilities as a result. Artificial interference in the free workings of financial systems does not indicate that something is wrong with the system as much as f@#*ing around with it to suit your own vision of the way it should work. And a word of warning about "chasing out the banking experts" from the UK. London's history of finance is one of having to bring in outsiders to run it for them, which is why their are streets in the financial district named Old Jewry and Lombard.
Nexxo, you know very well that the remuneration structure does not work like that in that industry. You also know very well some of the public sector departments pay or have paid bonuses to their staff too, and have historically offered up to five times annual salary in redundancy settlements - considerably above that which the government sets as the standard for us "ordinary non public sector workers" - yet you haven't raised either of those issues as a concern in this widening debate regarding remuneration
My point (all along) has been that there is no logical reason for why it should. It has not been raised before. Public sector bonuses have often aimed to emulate the private sector pay rewards in an attempt to compete with them in recruitment, so blame the private sector for starting the trend. But I agree that some employment protection and redundancy schemes in the public sector have been equally indefensible.
But it does, in other industries too. Fact of life Have been? They still are, currently on offer to someone I know is three times his annual salary. To achieve that in the "real" world "Average Joe" would have to have worked at the same company for 113 years (approximately ) Edit: damn my maths is **** today lol
Total agreement with everything you've just said, which was a point I was trying to make on the first page, but people just don't seem to read or want to acknowledge it as they're too busy falling over to defend a flawed renumeration system. Out of interest, those who defend the system, do you work for a bank? Declare your conflict of interests!
No. My conflict of interest is that I like money, and don't like people who tell me that I'm wrong for liking money - or feeling OK with the fact that people earn lots of it for doing a job.
