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Douglas

Good piece. Worthwhile reading, thank you.

Are bonuses bad for you?
Bonuses are bad for everyone; they bespeak the seperation between rich and poor, especially when they are not transparent and you cannot ascertain exactly why they are being paid. They seem to be the characteristic, part of the culture of the capitalist system.
There is something "evil" about bonuses; if for no other reason than this: It takes hundreds, maybe thousands of people to earn the "bonus" that goes to the CEO and yet the little people do not get their fair share.
There is something "evil" about bonuses that get paid to any financial services entity that took a bail-out, even if repaid, because the bailouts are shouldered by the taxpayers; yet, the taxpayers have not gotten a rebate.
In my opinion, it has nothing to do with journalists' prejudices or envy.
It has everything to do with greed, unfairness, lack of transparency and a furtherance of 1% of the population controlling 99% of a western country's money supply. The recipient of bonuses are generally-speaking on the gravy train while those making the bonus possible are drowning in the gravy.
Rewarding senior executives generously is seen as essential to company success, but without any facts (at present) to support my opinion, I believe that companies operate best where the employees own the company and all share equally in that companies success or failure; this is what I call vested interest.
Bonuses may seem "a relatively small cost for the right leadership team", but it is the workers that make or break any business.
Western societies use bonuses; but there are better ways to go, more democratic ways to go, more worker-valuation ways to go.
PRP can make plenty of trouble when two workers compare what they have received and there are no clear rules on what justified more to one and not to the other; this trouble is generally called - low morale, company espionage, or just plain bitterness and lower productivity. Also, as pointed out in your masterful article: "Keen to ensure they don't lose their entitlement, workers can feel the pressure to get back from ill-health earlier than they should, and that can have negative consequences on long-term health."
And then there is the worse catastrophe of all: Workers working their butts off, and the company fails - likely due to the freeze in the ability to get financing or credit. How does one accept this? For how long does one accept this? There have even been cases where the workers do not get their final pay or severance package; instead, they are locked out. It is one of the most detrimental characteristics of the capitalist system, adds to unemployment, and causes dissatisfaction with the workings of the capitalist system.

"Are bonuses bad for you"? is the title Douglas Fraser's blog.

There appear to be several distinct issues:

1) banking bonus which is morphing into higher salaries and other legally untaxable 'benefits'.

2) media merging domination of reporting their own view - of the few.

3) stock exchange merging and domination of their own trading - of the few.

The global economy is beyond 'ordinary' people. It's now all about ALL of the above who are beyond international, political or moral law? If you buy a stock exchange - you are the law?

Eliminate the bonus system. Mintzberg (2009) calls the culture of bonuses on Wall Street and public corporations a form of legalized corruption and largely responsible for the financial meltdown of 2008. According to Olive (2009) In public corporations 鈥溾�� excessive CEO pay is the cancer eating away at sound corporate management. Excessive pay for top management distorts decision making. It encourages reckless and short-term behavior that damages the enterprise and undermines the wider economy. He goes on 鈥淢ostly this cursed phenomenon takes the form of CEOs betting the company for a quick windfall, hence the crisis in global finance that brought us to the brink of a second Great Depression.鈥� As we observe with the bonus system and compensation in general we can conclude that most executives operate with the belief that they are special and how they are paid should have little relationship to reality. Consequently they have their special compensation systems structured by 鈥渃ompensation consultants鈥� who guarantee a handsome bonus no matter what the company does. In addition these bonus systems only reward short term goals and forces greedy CEO鈥檚 to terminate employees, outsource, offshore and reduce R&D and long range objectives to fatten the bottom line for the big short term bonus. While there is wide spread belief among academic researchers and business writers that CEO compensation should be aligned to corporate performance the chief complaint is that current compensation practices tend to reward short term profitability. Consequently we find that current compensation practice results in short term bottom line results where CEO鈥檚 push their employees to take short-term risks with little regard for the long-term effects. This view became particularly visible during the crisis of 2008 and led to a movement by business writers, politicians and others to suggest that CEO compensation should be changed to consist of restricted stock and other forms of long-term compensation designed avoid rewarding short-term performance. According to Cooper, Gulen and Rau (2009) this proposed system of compensation implies a positive relationship between long-term incentive pay and future firm performance. They disagree and they have demonstrated that there is not only no positive relationship but in fact there is an inverse or negative relationship between CEO compensation and long term shareholder wealth. In fact they discovered the higher the CEO long term compensation the lower the shareholder returns. We now have significant evidence to suggest that overpaying executives will decrease shareholder wealth. Why? The answer is simple excessive pay is a disincentive to do well but it is an incentive to 鈥渢ake the money and run.鈥� Since the crash of 2008 we have seen Wall Street bonuses come roaring back. In 2010 Wall Street will pay out $144 billion in bonuses. This would break a record for the second year in a row. This is clear evidence that Wall Street, the Washington politicians and the so-called regulators are all in bed together. The bailed out Wall Street gang is back in 鈥渂usiness as usual鈥� and the country is back on the road to disaster. Wright (2010) discovered that between 2005 and 2010 investment banks paid their staff about three times what their owners and shareholders made in profits. For example, Goldman Sachs paid its staff roughly 1.2 times what was left for shareholders; at Morgan Stanley鈥檚 institutional securities division pay was about 3.3 times pre-tax profits; at Credit Suisse鈥檚 investment bank it was 7.5 times. Wright could not calculate the number for the investment bank at UBS because it paid its staff about $34billion over the period, despite losses of more than $44billion. This goes on despite research maintaining that bonus systems only creates short term wealth and encourages risk taking behavior and was responsible for the crash of 2008, the loss of millions of jobs and the financial mess America is in

There is no possible argument in favour of banker's bonuses whilst the support for start-ups, spin-outs and other early stage companies remains so shamefully low.

This perpetuates the media myth that everyone who gets a 'bonus' is somehow a 'top executive'.
In most of the economy (except the Public sector, and it seems Journalism) it has become quite normal for all employees' pay to be linked to performance, including on the shop floor as well as in the exec suite. A chunk of your pay is held back, and then released (or not) depending on an objective (or not) assessment of the corporate and/or individual performance. This appears on your payslip as a 'bonus'.
However media still persists the notion that
bonus
=executive
=fatcat
='them' not 'us'
It's possible this is coloured by journalists' prejudices or envy.

According to the Scotsman the Royal Bank of Scotland's private equity division is in talks to buy English caravan site operator Park Holidays.
Investment firm Graphite Capital, which bought the business in 2006, is thought to be seeking offers of about 拢200 million.

So the question is why exactly would a bank that purports to be supportive of the economy choose to spend 拢200m on a caravan park operator than invest it in helping establish new Scottish high value adding companie?

Bonuses begets GREED! And certainly it is far more prevelant the higher up the ladder! Let me share one such incident from our now departed (still alive though, working for our other national drink) finance director! During a pay review he remarked had everyone followed his example from previous years bonus payement and invested it in the likes of an ISA's (no mention of the 拢3k her indoors spent on a new alligator skin belt). My reply was, I had 2 large GAS & ELECTRICTY bills to be paid that left just enough for a KFC family bucket! Meanwhile the biggest share of the BONANZA went to the owners, who invested it all in offshore tax avoidance laundry trusts!! Slowly but surely corporate yank culture is now widespread...theres a message in the movie National Lampoons Christmas Holiday that is uncomfortably all to true! true.................

I was surprised and disapppointed that Prostraken has been sold to a Japanese company until I read up on their CEO and discovered that he has a record of selling companies on in order to please institutional City shareholders. I thought this sort of mentality had been squeezed out of the system but obviously not.

Says to me we need a takeover panel in Scotland.

It is wisely said that a Corporation is a device designed to spread blame whilst concentrating remuneration in the hands of the executives.

Far too often bonuses are given based on criteria that are wholly divorced from the regular failure/success criteria for a department/division/company. In many cases Managers are given bonuses for tidying up after (cutting costs) the incompetence of the Executives and Executives are given bonuses for coping with the lack of vision of the team at the top.

It seems that the righteous ire directed at the big bonus boys at the top of the pyramid is always countered with the claim that 'if you want the best, you have to pay for it' - given the all-encompassing meltdown of the global economy one is forced to ask whether 'the best' is good enough, frankly.