The warped world of incentivising

By Alun Thorne on Oct 14, 08 09:10 AM in Economics

Despite all the chaos in our financial system, there still seems to be a significant number of apologists prepared to go on record and justify the renumeration potential within the banking sector.
Every time I switch on the radio or open a newspaper, a commentator from the financial sector uses the dreaded I word (incentivise, not idiot) to justify the massive salaries and bonuses that are currently and will continue to be enjoyed Bo Jo's masters of the universe.

What is particularly galling is what these individuals are being incentivised away from. It is not that they may think working within the financial sector is no longer for them and perhaps seek pastures news as perhaps a teacher or a fireman - it is to stop them leaving for the opposition.
We are told that a significant bonus system has been reintroduced at what remains of Lehman Brothers to incentivise those staff tasked with rebuilding the failed company - are we saying that despite basic salaries that many of us can only dream of, these people would walk away without significant further incentives? Where would they go? The financial sector is supposed to be contracting, not expanding and yet still there is supposedly a need to incentivise to retain a half-decent workforce.
I think as our Government alone pumps in enough money to run the NHS for nearly six months to clear up their mess, that this whole system has been exposed as nothing short of financially and morally bankrupt.
It is not a comfortable view to hold as a business editor of the Birmingham Post - we are supposed to be champions of the free market and the economics of supply and demand - but when an ardent Thatcherite colleague begins denigrating the City whizz kids and their greedy masters, I feel I am now on much safer ground. The problem is, as we have seen from Lehman where incentives are still deemed necessary within companies that have now gone bust, how do we change the system to make it not only less likely to bring the global economy to its knees again but also more realistic compared to us poor buggers who hated maths at school?

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1 Comments

Jo said:

The key phrase is "free market". Perhaps look for entrenched privilege.

I would look to the Companies Act and matters of governance. Perhaps ask IoD for a comment. Perhaps ask CIPD for a comment.

Perhaps ask the Chairmen (?) not the managers what they did to ensure that the banks did not get into this mess and what their responsibilities were as Directors.

Perhaps write up who is on those Boards? And from there how citizen/taxpayer representatives will act?

And aren't Directors required to act in the interests of the company not the interest of the shareholders who nominated them? I think German law is a little different.

Just a little list of questions that bother me!

October 14, 2008 1:17 PM