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Thread: More bonuses

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    More bonuses

    According to a radio report, John Lewis (and therefore also Waitrose) staff are to receive a 17% bonus, equivalent to about 9 weeks salary. And it's based on performance. And in my opinion, well-deserved .... and no, I do not and never have worked for them.

    But it seriously makes me question this latest EU move on bonuses. While I don't like vast bankers bonuses any more than anyone else, I can't see this EU cap working, and indeed, but could well be counter-productive.

    First, if you cap bonuses, all that will happen is that base salary will go up to compensate. What they get paid will still be market-driven, and if bank A doesn't pay it, bank B will, and the rainmakers will leave A for B.

    Secondly, bonuses are (in theory, at least) performance-dependent. If you increase base salary and reduce bonus, you actually decrease the link, and decrease the ability of the bank to reduce costs in bad times by reducing bonuses. The other obvious option is to cut staff. So who gets fired? Profit-generating traders, or the poor working Joes (and Janes) in admin, or branches? Yeah, quite!

    And third, in this changed environment, you stand some chance of clawing back bonuses, especially non-cash bonuses like trade-restricted shares or options. But if it's salary, I'd say the chances of any clawback are exactly zero.

    All told, the cap strikes me as populist political posturing and grandstanding. Much though I'd like to see banks sorted out, this cap strikes me as a daft way to go about it, not least because I do not see it working .... unlike the John Lewis scheme.

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    Banhammer in peace PeterB kalniel's Avatar
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    Re: More bonuses

    The john lewis bonus is far below the proposed 200% cap on bonuses from the EU though, so I'm not sure it's fair to bring it into the argument.

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    Re: More bonuses

    The whole cap is just insaine political pandering. It's a pure and simple trading on envy.

    It won't work at all because as you've said bonuses would be changed, often in to salary but probably in to an SPV (special company created to simplify accounting, or dodge tax YMMV) stock, which will be value dependant as if it was the bonus. This has many advantages for reducing the tax they pay too.

    Or salaries will simply just rise, which is even more fun because despite hearing about the millions that are put in to pools, they are seldom given out to under performers, in fact banks are incredibly ruthless when it comes to not giving bonuses to traders who haven't done well, even ones who've made money, just not enough. They often carry it through to the entire team of supporting staff too, so someone who's done their job very well, can loose out because the business they support will be given little/no bonus. If they've bumped the salary this won't happen, it will be a case of someone who has had one good year never needs to worry again, EU employment laws make it very hard to fire or wage cut an employee, even if they've lost money.

    Given that most of the higher end bonuses awarded are taxed at 50%, it's also not a good idea to encourage the market to give the performance pay in more creative ways.

    As it stands a lot of hedge funds don't pay tax on bonuses due to various techniques, I've lost friends who've become non-dom here to avoid the tax. Banks tend not to do this, mostly due to the cost of setting up such arrangements. However I think a cap might make the cost of that worthwhile for them.
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    Re: More bonuses

    Quote Originally Posted by kalniel View Post
    The john lewis bonus is far below the proposed 200% cap on bonuses from the EU though, so I'm not sure it's fair to bring it into the argument.
    True, though the 200% is only with shareholder approval. Otherwise, it's 100%, IIRC.

    That aspect of it, though, I entirely agree with - any large-scale payout ought, IMHO, to be subject to shareholder aporoval. After all, it's their company, and their money.


    As for bringing John Lewis in, it was, if you like, a segue, and what brought the cap back to mind. And, it's a contrast and example on bonuses used in a good way, reward for performance. So, if the cap reduces banker bonuses, will it have a good effect, or simply not work as apparently intended.

    My view is that banker bonuses are not the problem. The problem is excessive banker remuneration, period, never mind whether it's a bonus or base salary.

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    Re: More bonuses

    there was a Matt cartoon the day after this was announced with the following caption:
    "sorry, no bonus... but we would like to buy your tie for 3 "

    I think it's sadly inevitable that any restriction / cap will easily be worked around.

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    Re: More bonuses

    I am fed up with the EU meddling in a knee jerk reaction. We have already seen the law of unintended consequences at work when they decided that motor insurance should not take gender account when assessing risk, even though young males are far mor likely to have a high value claim than a young female.

    As for banker's bonuses, that should be the preserve of the owners of the company, ie the shareholders. In the case of some UK banks, that includes the government as the majority shareholder.
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    Re: More bonuses

    Quote Originally Posted by peterb View Post
    As for banker's bonuses, that should be the preserve of the owners of the company, ie the shareholders. In the case of some UK banks, that includes the government as the majority shareholder.
    Well that's an argument for mandating government majority ownership in all banks.. which is even more worrying IMHO. Otherwise if left to profit seeking shareholders you create the theoretical situation where banks chase massive profits to appease shareholders (using bonuses to drive that behaviour), at the expense of increased exposure to risk and collapse in the way we saw in 2008.

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    Re: More bonuses

    The John Lewis situation is also different as the staff are the owners of the company, so it's dividends they're getting not necessarily bonuses. Although it is a bonus. And they always pay a far better bonus than I've ever got at any company i've worked at...

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    Re: More bonuses

    Quote Originally Posted by Smudger View Post
    The John Lewis situation is also different as the staff are the owners of the company, so it's dividends they're getting not necessarily bonuses. Although it is a bonus. And they always pay a far better bonus than I've ever got at any company i've worked at...
    Is it actually a dividend they are taking?

    Bloody tax dodgers!
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    Re: More bonuses

    Quote Originally Posted by Saracen View Post
    And, it's a contrast and example on bonuses used in a good way, reward for performance.
    Surely the distinction is that a partnership pays bonuses for company performance, whereas banker bonuses are typically paid for individual performance.

    Not always, I agree, but I do get the impression that's what's caused a lot of the misunderstanding. I mean, an individual trader might have earned a fortune for a bank, but that doesn't prevent the bank as a whole making a loss.

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    Re: More bonuses

    Quote Originally Posted by TheAnimus View Post
    Is it actually a dividend they are taking?

    Bloody tax dodgers!
    Not entirely sure, as I'm not 100% familiar, but full-time staff at JL and Waitrose are all 'Partners' and so own a percentage of the company.

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    Re: More bonuses

    Quote Originally Posted by TheAnimus View Post
    Is it actually a dividend they are taking?

    Bloody tax dodgers!
    Not tax dodgers at all. Dividends come out of post tax profits, so CT has already been paid on the dividend payment. In recognition of that, there is a notional tax allowance to the shareholder at the basic rate, but if overall income by the individual exceeds the higher rate threshold, then there is taxation due on dividend payments.


    Quote Originally Posted by kalniel View Post
    Well that's an argument for mandating government majority ownership in all banks.. which is even more worrying IMHO. Otherwise if left to profit seeking shareholders you create the theoretical situation where banks chase massive profits to appease shareholders (using bonuses to drive that behaviour), at the expense of increased exposure to risk and collapse in the way we saw in 2008.
    No, it is an argument for greater shareholder control, and also an argument for the demerger of the investment and retail banking operations of the high street banks.
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    Re: More bonuses

    Quote Originally Posted by peterb View Post
    No, it is an argument for greater shareholder control, and also an argument for the demerger of the investment and retail banking operations of the high street banks.
    Which requires government regulation to enforce. Let's not kid ourselves, we let the banks run free and wild, and they did spectacularly stupid and dangerous things to turn a quick buck (which actually kept short-sighted shareholders happy). Companies aren't ethical entities, they exist solely to make money for their owners, and they require enforced legal constraints on their actions to make sure they don't cross the line.
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    Re: More bonuses

    i did notice at xmas when i bought a load of presents on xmas eve that the service from staff was exceptional, from calling earlier in the day when i found from another site that an item was instock and they reserved it for me on one of the busiest days of the year, to the girl on the perfume counter finding the perfect present and gift wrapping it for me. having worked in retail, and obviously spent a lot of time over the years shopping, i could tell there was a huge difference between the general attitude of the staff in that shop compared to anywhere else. they were also all very smartly groomed and dressed, as well as polite, and not in the smarmy dixons/mcdonalds "script reading" way either. it was like they all got laid for the first time by supermodels and hadn't came down yet

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    Re: More bonuses

    Quote Originally Posted by aidanjt View Post
    Which requires government regulation to enforce. Let's not kid ourselves, we let the banks run free and wild, and they did spectacularly stupid and dangerous things to turn a quick buck (which actually kept short-sighted shareholders happy). Companies aren't ethical entities, they exist solely to make money for their owners, and they require enforced legal constraints on their actions to make sure they don't cross the line.
    Actually, over quite a long period, the bulk of the benefits seem to have gone to bankers, not shareholders, and of course, the major shareholders prominently include the likes of pension funds, the beneficiaries of which will be those with forth-coming pension provisions.

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