Your Bonus Sir?

[Jack o'Clubs]

They should be used as intended for positive outstanding contribution. Not be part of salary for doing regular work. There is PAYE for that. :-0

Well now you're talking away from banking bonuses and that's another kettle of fish. But in general I still think the furore is overdone. If you said the going rate for a job was £50k (either in terms of ROI to the firm or the market rate) and you could either pay £50k and be done with it or £40k with a £10k 'on target' bonus which could be zeroed for bad performance or increased in the case of exceptional performance, then call me naive but I think you'll generally get a more incentivised employee under the bonus set up even if total comp is the same. The onus is then on the employer to set the correct targets.

But help me with a real life example. A guy runs a small hedge fund within part of a larger financial services institution. Overall the firm as a whole isn't doing that well, may make a loss this year. But this guy (and indeed the larger group of portfolio managers) is performing well. His fund is only running a year and is small with AUM of $75m but is already up 10pc net for a market / beta neutral strategy with no gearing, ie pure alpha. Already word is out that his performance is good and some larger more focused hedge funds are sniffing around. You're his manager. What would you pay him and how would you structure it? Remember the larger FS firm for which he works is probably going to make a loss this year.

 

[Eric Geddes]

But help me with a real life example. A guy runs a small hedge fund within part of a larger financial services institution. Overall the firm as a whole isn't doing that well, may make a loss this year. But this guy (and indeed the larger group of portfolio managers) is performing well. His fund is only running a year and is small with AUM of $75m but is already up 10pc net for a market / beta neutral strategy with no gearing, ie pure alpha. Already word is out that his performance is good and some larger more focused hedge funds are sniffing around. You're his manager. What would you pay him and how would you structure it? Remember the larger FS firm for which he works is probably going to make a loss this year.

Isn't that just the point with Stephen Hester? He's taken on the pile of **** at RBS and done well despite having an overall loss. Can you imagine what it would have been like run by a bunch of Socialist *******ers? (I seem to remember one of the St Pauls occupiers reckoned on Newsnight that she could easily run RBS instead of Hester for a fraction of his salary)

 

[Pat494]

There should be a FAIR WAGES policy in this country

If Fred the shred and others think that somewhere else will pay them huge amounts then they are welcome to emigrate. They aren't losing their jobs/homes etc.

Someone was suggesting hanging some to push the message home. Well I don't think we should go that far but a trial for negligence and big fines is a possibility.

 

[counter_violent]

But help me with a real life example. A guy runs a small hedge fund within part of a larger financial services institution. Overall the firm as a whole isn't doing that well, may make a loss this year. But this guy (and indeed the larger group of portfolio managers) is performing well. His fund is only running a year and is small with AUM of $75m but is already up 10pc net for a market / beta neutral strategy with no gearing, ie pure alpha. Already word is out that his performance is good and some larger more focused hedge funds are sniffing around. You're his manager. What would you pay him and how would you structure it? Remember the larger FS firm for which he works is probably going to make a loss this year.

Ok well his manager has the benefit of seeing how the group is performing both individually and as a whole, so his remit will be to ensure that the group makes a profit overall.

So if I was him, I would target resources and funds where they could be used most effectively ie to generate the most profits. Whilst at the same time trimming back on people overhead in non performing loss making funds. I would imagine this is a continual process. The benefits of running a profitable organisation are quite obvious in terms of ensuring that the staff all have jobs at the end of the day. Although they may not appreciate this fact (because people are like that), there are possibly only a handful of performing people that keep the whole group in jobs ! Also, the performing fund managers would need to be incentivised somewhat as there is always the risk of being poached by other firms.

 

[Atilla]

Well now you're talking away from banking bonuses and that's another kettle of fish. But in general I still think the furore is overdone. If you said the going rate for a job was £50k (either in terms of ROI to the firm or the market rate) and you could either pay £50k and be done with it or £40k with a £10k 'on target' bonus which could be zeroed for bad performance or increased in the case of exceptional performance, then call me naive but I think you'll generally get a more incentivised employee under the bonus set up even if total comp is the same. The onus is then on the employer to set the correct targets.

But help me with a real life example. A guy runs a small hedge fund within part of a larger financial services institution. Overall the firm as a whole isn't doing that well, may make a loss this year. But this guy (and indeed the larger group of portfolio managers) is performing well. His fund is only running a year and is small with AUM of $75m but is already up 10pc net for a market / beta neutral strategy with no gearing, ie pure alpha. Already word is out that his performance is good and some larger more focused hedge funds are sniffing around. You're his manager. What would you pay him and how would you structure it? Remember the larger FS firm for which he works is probably going to make a loss this year.

Agreed. As mentioned not against bonuses. Just bonuses pencilled in irrespective of gain. Does that mean COEs should be rewarded by the same scale.

If the COE benefits out of the fund manaagers performance why not the cleaner who has to wipe his desk and clean the toilet.

Everyone is up for flat tax rates and despise progressive taxation.

Yet bonuses are graded. Higher the wage and level higher the % bonus. Grade1 employees receive 3% bonus + 2% discretionary. The board as well as earning 1000 times more than grade 1 cleaner, receive 20-30% bonus and the discretionary part is pretty much guaranteed amongts the gang of stuck up snots behind closed doors. You catch my drift.

This is the problem you see. There is no balance but pure sheer greed and it's all one way. Do people not see the bias. You counteract one point with another. I see your perspective and agree partially.

But you are quite happy to go along with a rotten system which is clearly broken and unsustainable?


No body is against bonuses just the way they are doled out for the benefit of very few key decision makers who contribute little in way of work or effort.

Pencil in another 49% increase in bonuses and see where company shareholding value is likely to be in another 10-20 years.

What are the consequences for pension funds?

I'm afraid the system is so badly rotten we are all well and trully stuffed.

One last point - I read somewhere most Fund Managers are returning mediocre returns. Can you please identify and suggest what should be done with their bonus.

As also mentioned before your example is not the rule as staff turn over is very low indeed so facts on ground do not support your claims for justifying silly bonuses.

 

[scose-no-doubt]

Only because our politicians chose to make it so.

Yes because of 1)cronyism 2)over-reliance on the finance sector for growth.

The banks are the life-blood of the economic model in this country and they know it. Lobbyist get anything they damn well please. Look at the toothless show Georgy-boy put on in response to the bonus furore hitting the headlines... sound bites and damage control.

One thing they did right was to let Lehmans go and a lot of highly paid people lost jobs and the equity they had built up over years (Lehman always paid a lot in stock and was the IB most owned by its staff). That's exactly as it should happen. Lehman went bust, senior employees lost fortunes. That's how the model is supposed to work.

Again lobbyists screaming about socialism as soon as any form of regulation is suggested and look what happened. Over-leverage and ridiculously poor judgement by some people - the ones that mattered and should know better. And look at the damage caused by letting Lehman go. Letting "the model" take it's course was an untenable course of action. It's like a doctor telling a patient who is septic that they shouldn't have cut themselves lol.

 

[barjon]

...............The banks are the life-blood of the economic model in this country and they know it..................

Sure thing and it was a deliberate plan from the Thatcher era that it should be so. Just shows the danger of putting all you eggs in one "financial sector" basket.

 

[Jack o'Clubs]

One last point - I read somewhere most Fund Managers are returning mediocre returns.

If you think about it, that statement is axiomatic.

Can you please identify and suggest what should be done with their bonus.

Simple, below benchmark +2% return, no bonus. From +2% a sliding scale. Returns measured over three and five years to prevent the incentive of going 'all-in' towards the end of a bad year and risking a blow up. Max bonus officially not more than 100% of basic but with discretion if worried someone might walk. Benchmark obviously depends on the fund strategy and what it is trying to achieve. That's what happens at my shop, seems to work quite well.

And back to the Stephen Hester question - I have no problem paying him a low-number of millions if saves the UK taxpayer a high number of billions. He was brought in to detoxify RBS and if he manages that he should be rewarded appropriately. And I do think, almost by definition, he is doing work that no one currently internal to RBS could have done.

 

[Atilla]

If you think about it, that statement is axiomatic.

Simple, below benchmark +2% return, no bonus. From +2% a sliding scale. Returns measured over three and five years to prevent the incentive of going 'all-in' towards the end of a bad year and risking a blow up. Max bonus officially not more than 100% of basic but with discretion if worried someone might walk. Benchmark obviously depends on the fund strategy and what it is trying to achieve. That's what happens at my shop, seems to work quite well.

And back to the Stephen Hester question - I have no problem paying him a low-number of millions if saves the UK taxpayer a high number of billions. He was brought in to detoxify RBS and if he manages that he should be rewarded appropriately. And I do think, almost by definition, he is doing work that no one currently internal to RBS could have done.

Ok fair cop - once again I agree. But how does what you suggest is simple correlate to what actually happens?

Not sure I understand your position either. Is corrective action necessary or not?

How do you feel about a flat bonus to all staff +discretionary + employee representation on the salary review committee?


Basically - I do not feel your experience matches conduct in the market or my bank for that matter which is not in the FTSE?

 

[Jack o'Clubs]

Not sure I understand your position either. Is corrective action necessary or not?

Yes, action is necessary in situations where the bonus culture doesn't fit the examples above, and particularly in the public sector where taxpayers have no influence (shareholders can vote with their feet if they really don't like corporate governance issues). But my argument is that instead of the 'ban all banking bonuses' rhetoric that is all over the media and is the consensus public view, the reality is far more nuanced, and that includes the subject of this thread, Mr Hester. That's all.

 

[Atilla]

Yes, action is necessary in situations where the bonus culture doesn't fit the examples above, and particularly in the public sector where taxpayers have no influence (shareholders can vote with their feet if they really don't like corporate governance issues). But my argument is that instead of the 'ban all banking bonuses' rhetoric that is all over the media and is the consensus public view, the reality is far more nuanced, and that includes the subject of this thread, Mr Hester. That's all.

I haven't read anywhere anyone stating ban all bonuses.

Only calls for redress and for UK to stop rewarding failure.

As for RBS chief I think he is paid enough considering he has only released 35,000 employees and sold off part of the business.

Toxic or not but if I'm going for an interview I know - and I am expected to know the job I am going for. Experience is also expected.

I strongly disagree about this chap being given £1m with £1m bonus. Why? How is that any different to any other job.

When you voice support for such personnel in my opinion you are regurgitating same old - how marvelous these people are when they aren't even mediocre.


Here is a suggestion - chase the *******s who took on the toxic waste for RBS - claim back bonuses earnt for negligent behaviour (no due dilligence - pretty basic imo) and give monies claimed to Hester. Now there would be some justice.

But rewarding both parties for absolute zilch is too rich for my sense of just rewards.

 

[Jack o'Clubs]

I strongly disagree about this chap being given £1m with £1m bonus. Why? How is that any different to any other job.

Let's say Hester had quietly negotiated a flat £2m salary when he was taken on. Do you think there would now be any fuss / controversy now? Probably not. But which is better for the taxpayer, £2m basic or £1m plus same again if he's hitting his targets? £2m (half of that goes straight back to the govt as tax) doesn't seem excessive if he gets the job done.

 

[Atilla]

Let's say Hester had quietly negotiated a flat £2m salary when he was taken on. Do you think there would now be any fuss / controversy now? Probably not. But which is better for the taxpayer, £2m basic or £1m plus same again if he's hitting his targets? £2m (half of that goes straight back to the govt as tax) doesn't seem excessive if he gets the job done.

You've hit the nail on the head with the quietly bit - behind closed doors...

Nothing should be BAU with these types of contracts any longer especially if they are in the public sector.

What was he doing before and what sort of salary was he on?

Early life

Hester is the eldest son of a university professor. He was educated at Easingwold School in North Yorkshire a rural comprehensive school, and at Oxford where he studied at Lady Margaret Hall, Oxford, and after chairing the Tory Reform Group, graduated with a first class honours degree in Philosophy, Politics and Economics.[2]
[edit] Career

Hester began his career in 1982 with Credit Suisse, where he started as chairman’s assistant.[2] In 1996 he was appointed to the executive board. Hester held the position of Chief Financial Officer and Head of Support Division, until May 2000. From May 2000 to September 2001, he was Head of Fixed Income Division.

In May 2002 he joined Abbey National as Finance Director. He then went on to become Chief Operating Officer, a position he held until November 2004, when he was appointed Chief Executive of British Land. In early 2007, eight months before British Land and other REIT's were caught in the commercial property slump, he said: "I don't believe we are about to see a market decline, but the period of sharp growth is over."[3]

Hester was appointed non-executive deputy chairman of the newly-nationalised Northern Rock by Chancellor of the Exchequer Alistair Darling in March 2008,[4] a role which he resigned from in September 2008 to take a non-executive position on the board of Royal Bank of Scotland.[5]

Interesting CV - Nothing outstanding other than fulfilling usual positions. Not sure what is special about this chap other than breeding. Also - not many people start there careers as Chairman Assistant?

 

[Jack o'Clubs]

You've hit the nail on the head with the quietly bit - behind closed doors...

Nothing should be BAU with these types of contracts any longer especially if they are in the public sector.

What was he doing before and what sort of salary was he on?

Early life

Hester is the eldest son of a university professor. He was educated at Easingwold School in North Yorkshire a rural comprehensive school, and at Oxford where he studied at Lady Margaret Hall, Oxford, and after chairing the Tory Reform Group, graduated with a first class honours degree in Philosophy, Politics and Economics.[2]
[edit] Career

Hester began his career in 1982 with Credit Suisse, where he started as chairman’s assistant.[2] In 1996 he was appointed to the executive board. Hester held the position of Chief Financial Officer and Head of Support Division, until May 2000. From May 2000 to September 2001, he was Head of Fixed Income Division.

In May 2002 he joined Abbey National as Finance Director. He then went on to become Chief Operating Officer, a position he held until November 2004, when he was appointed Chief Executive of British Land. In early 2007, eight months before British Land and other REIT's were caught in the commercial property slump, he said: "I don't believe we are about to see a market decline, but the period of sharp growth is over."[3]

Hester was appointed non-executive deputy chairman of the newly-nationalised Northern Rock by Chancellor of the Exchequer Alistair Darling in March 2008,[4] a role which he resigned from in September 2008 to take a non-executive position on the board of Royal Bank of Scotland.[5]

Interesting CV - Nothing outstanding other than fulfilling usual positions. Not sure what is special about this chap other than breeding. Also - not many people start there careers as Chairman Assistant?

He went to a rural comp. Sounds like the chips are on your shoulders if you then bang on about 'breeding'! 18 years at Credit Suisse including as CFO, sounds like he knows what he's doing... And then Abbey National where he was specifically brought in to sort out a mess. FWIW Chairman or CEO's Assistant is a hugely sought after role for potential high flyers, usually given to the best of the new graduate intake. You get to shadow the big boss for a year, a fantastic honour and experience. In my first grad job (in industry, not fin services) which was at a FTSE co. there was an actual competition set for those of the new intake that wanted that job.

 

[Atilla]

He went to a rural comp. Sounds like the chips are on your shoulders if you then bang on about 'breeding'! 18 years at Credit Suisse including as CFO, sounds like he knows what he's doing... And then Abbey National where he was specifically brought in to sort out a mess. FWIW Chairman or CEO's Assistant is a hugely sought after role for potential high flyers, usually given to the best of the new graduate intake. You get to shadow the big boss for a year, a fantastic honour and experience. In my first grad job (in industry, not fin services) which was at a FTSE co. there was an actual competition set for those of the new intake that wanted that job.

How do you reach that decision? Every tom dick and harry did well out of the finance industry in the last 18 years. He simply did a job being handed out jobs for the boys.

Here we go again - chip on shoulder for calling it like it is. Perhaps you are right.

I'm from ground up and if our system bred world beating champions I may agree with you. The fact that since the late 19th century precisely because of our arrogant conceited attitudes we have been going down hill and pretending we are up there with world beating countries.

Just out of curiosity - what experience does one need to make 35000 people redundant and sell off loss making parts of the business that management can not turn around.

You make it sound so clinically toxic but I reckon Dagenham wheel barrow boy has just as much business acumen and shrewd instincts to make those decisions than these ******s claiming they are irreplaceable and worth millions.

Chip or no chip - all I can say is I know BS when I hear it. I'll leave it at that.