Blame it on the bonus cul­ture

The Herald Business - - Straight Talking -

AN­OTHER year on, and noth­ing threat­ens to prick the in­vest­ment bank­ing bub­ble. The big bonus an­nounce-ments are ar­riv­ing right on cue.

Ali­son Carn­wath, former chair­man of the re­mu­ner­a­tion com­mit­tee at bank­ing gi­ant Bar­clays, put it well when she ap­peared be­fore the Par­lia­men­tary Com­mis­sion on Bank­ing Stan­dards re­cently. She talked about how, in the bank­ing sec­tor, a “cul­ture of en­ti­tle­ment” had been cre­ated when it came to bonuses.

While most of the pop­u­la­tion deals with the Coali­tion’s aus­ter­ity pro­gramme, with many peo­ple hard-pressed to buy ne­ces­si­ties and strug­gling to pay off fes­tive ex­pen­di­ture, thou­sands of UK-based in­vest­ment bankers will be think­ing of the di­rec­tions in which they can throw their lat­est wads of cash.

It would have been in­con­ceiv­able in the au­tumn of 2008, when the col­lapse of Lehman Brothers sent the global fi­nan­cial sys­tem into melt­down, that big in­vest­ment bank­ing bonuses would have re­turned so quickly.

In ac­tual fact, with a lit­tle bit of tin­ker­ing here and there, the bonus merry-go-round has never really stopped. If there was a brief pause, per­haps we blinked and missed it.

There are mil­lions of peo­ple in this coun­try, work­ing in both the pri­vate and pub­lic sec­tors, who go the ex­tra mile ev­ery day and of­ten have to work ever harder as em­ploy­ers cut their staffing.

Th­ese peo­ple re­main com­mit­ted, amid pay freezes or pal­try rises, in some cases driven by a sense of pro­fes­sional pride, in oth­ers mo­ti­vated by ter­ror of los­ing their jobs. A sense of mo­ral duty of­ten plays a part.

There are oth­ers in so­ci­ety


who cre­ate sig­nif­i­cant wealth and em­ploy­ment who re­ceive big re­wards, and de­serve them for the risks they take and the ef­fort they put in. Many make fur­ther big con­tri­bu­tions with their phil­an­thropic en­deav­ours.

So it is no won­der that most of us look with be­wil­der­ment at the many in­vest­ment bankers who are paid a fat salary, and then ap­pear to re­quire a bonus be­fore they start to do some work.

Ms Carn­wath’s “cul­ture of en­ti­tle­ment” phrase rang a bell.

In a speech last June, David Cameron launched a scathing at­tack on what he claimed was a “cul­ture of en­ti­tle­ment” .

But his speech was aimed at jus­ti­fy­ing swinge­ing cuts to wel­fare pro­vi­sion, a cen­tral plank of a Coali­tion Government eco­nomic pol­icy which has brought the UK to the brink of a triple-dip re­ces­sion.

Mr Cameron spoke about build­ing a “more re­spon­si­ble so­ci­ety” and he talked about the wel­fare sys­tem hav­ing en­cour­aged “ir­re­spon­si­bil­ity”.

He of­fered his opin­ion that a gap had been cre­ated “in this coun­try be­tween those liv­ing long-term in the wel­fare sys­tem and those out­side it”.

He de­clared: “This has sent out some in­cred­i­bly dam­ag­ing sig­nals. That it pays not to work. That you are owed some­thing for noth­ing. It gave us mil­lions of work­ing-age peo­ple sit­ting at home on ben­e­fits even be­fore the re­ces­sion hit. It cre­ated a cul­ture of en­ti­tle­ment.”

There is de­bate to be had about whether or not wel­fare pro­vi­sion needs to be re­formed. Yet there is ev­i­dence to show that Coali­tion wel­fare poli­cies are hit­ting the most vul­ner­a­ble in so­ci­ety.

The in­vest­ment bankers are, by and large, among the least vul­ner­a­ble in so­ci­ety.

The case for tack­ling their bonus bo­nanza – the re­sults of which threat­ened to bring down the fi­nan­cial sys­tem and opened the door to a mas­sive global eco­nomic down­turn – is cast-iron.

So what about the in­vest­ment bankers’ “cul­ture of en­ti­tle­ment”? What about them get­ting “some­thing for noth­ing” ?

On the sub­ject of some­thing for noth­ing, is this not the def­i­ni­tion of those guar­an­teed bonuses we have heard so much about in the in­vest­ment bank­ing sec­tor?

And what about the bil­lions paid out in bonuses around the world over the years for be­hav­iour which turned out to have de­stroyed, rather than cre­ated, value? That is surely far worse than some­thing for noth­ing. What about the gap cre­ated in our so­ci­ety be­tween those liv­ing in the in­vest­ment bank­ing sec­tor and those out­side it?

And was there not grave “ir­re­spon­si­bil­ity” in the global in­vest­ment-bank­ing-sec­tor– en­cour­aged by the bonus sys­tem and greed of many of the par­tic­i­pants in this. This “ir­re­spon­si­bil­ity”, driven by peo­ple claim­ing bonuses rather than ben­e­fits, has blighted the lives of mil­lions across the UK.

The sec­tions of Mr Cameron’s speech, quoted above, would with a few tweaks have been far bet­ter ap­plied to the in­vest­ment bank­ing sec­tor. Af­ter all, it was this sec­tor which trig­gered the worst eco­nomic down­turn since at least the 1930s, not those claim­ing wel­fare. The vast bulk of wel­fare claimants are the in­no­cent vic­tims of what has tran­spired. In spite of all the rhetoric, they had noth­ing to do with it.

Of course there are prac­ti­cal dif­fi­cul­ties in erad­i­cat­ing the bonus cul­ture given the global na­ture of this mar­ket-place and in­grained greed.

How­ever, if Mr Cameron wants to take the mo­ral high ground against those trapped in a “cul­ture of en­ti­tle­ment” who are tak­ing “some­thing for noth­ing”, have shown “ir­re­spon­si­bil­ity” and cre­ated a gap be­tween them and the rest of so­ci­ety, per­haps he should first look down on the in­vest­ment bank­ing sec­tor.

David Cameron’s at­tack on a cul­ture of en­ti­tle­ment was aimed at jus­ti­fy­ing cuts to wel­fare pro­vi­sion

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