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Wednesday, 9 March 2011

The bonus boys are back in town! Revisiting the bonus conversations…

Guess who just got back today?
Them wild-eyed boys that had been away
Haven't changed, haven't much to say
But man, I still think them cats are crazy
The boys are back in town

Reading the paper version of the Dutch financial newspaper Financieel Dagblad (, I was caught by the fact that the bonus boys are back in town. Not that they have been away really: they only kept a kinda low profile for the time that politics was aiming their arrows at the bonusses.

A random list of messages from the March 9’s newspaper (for links see
Rabobank wrong in firing City Banker
[…] There has been disagreement before over Andrew Docker’s bonus. In spite of the fact that the earnings of his team in 2010 doubled (to ₤52.5 mln), his bonus remained equal to the previous year with ₤490,000. In 2008 Docker didn’t get a bonus at all, while his team generated ₤40 mln up to October 2008. This case is settled and nobody wants to tell how. 
Wolters Kluwer adjusts bonus criteria 
Publisher of legal and medical information Wolkers Kluwer is revising its bonus criteria. Coincidence or not, from the annual report published yesterday it proved that CEO Nancy McKinstry missed out on a multiyear bonus of 3 mln. The publisher trails the main competition as far as the shareholder value is concerned.[…] 
The variable reward should, according to the annual report, in the future only depend for 50% on shareholder value and for the other half on the profit per share. The publisher presented over the last years a profit per share that was meeting their own requirements. Does the company lower their own standards so that the company management can receive their multiyear bonus?[…] 
Bonusses of topmanagers Ahold rise strongly 
The bonusses of topmanagers of supermarket chain Ahold rose last year by 22% to €3 mln, according to the annual report. The total salary package decreased by 5% to €10+ mln. This decrease was caused by the omittance of the salary of former director Peter Wakkie and the departure of former CEO John Rishton. The latter saw his stock-based bonus drop by 1 mln, as he left the company for a new position at Rolls-Royce. […] 
Today’s funnies (comics)
Person A:”The boss of Barclay’s gets a bonus of 7.5 mln” 
Person B:”And on top of that his name is Bob Diamond”

And yes, we have a winner: the topmanager. Whether it are:
-     supermarket groups that ruined their shareholders in the recent (less than 10 years ago) past, due to fraudulent, bonus driven actions by their then topmanagement;

-     publishers that ruined their product portfolio until almost nothing is left, in order to create “better” shareholder value with bonus-driven intensions;

-     banks and insurers that were saved by the government and thus the taxpayer and nevertheless remain paying bonusses to everybody and their sister;
o    To be clear: The Rabobank is not (yet) saved by the government, but banks like Barclays, ABN AMRO, ING and SNS and insurers like Aegon remain paying bonusses too.

the topmanager is always the winner of the bonus discussions.

The reasons for handing out bonusses to the topmanagers is always the same pathetic, blubberer’s list.

We need to hand out bonusses:
-     to prevent our best people from going [to the competition / to Frankfurt / to the City / to Wall Street / to Hongkong/ abroad] (delete where not applicable)
-     to get the real talented people from the universities
-     because our competition does it too.
-     because it is normal in these kinds of jobs.
-     to improve our overall performance, as a fixed salary doesn’t do the job

I wrote a few weeks ago:

My opinion: there are enough intelligent, wise and decent people in the world that are prepared to work very hard and smart for a fixed salary of 50,000 – 200,000 EUR and that can easily do without a Porsche 911 4s, a 1,000,000 EUR penthouse in the City and 1000 EUR lunches. Those people, however, are not necessarily the current generation of bankers that are inhabiting the City, Wallstreet, the Amsterdam Zuidas, HongKong and Singapore. 
The arms race for salaries in the financial world has had a lot of unintended consequences, of which moral hazard was the worst one. Please stop with the bonus culture and pay decent people a decent salary of which they can have a good and prosperous life… 
And don’t listen to the Pied Pipers and financial drug addicts that tell you they can’t stop using those bonus drugs… because they can’t stop using those bonus drugs.

Today I want to make a stronger statement:

-     My bank ABN AMRO that hands out substantial bonusses to its managing personnel, pays an insulting  2.4% interest (max) on my savings account. I should punish this bank (and perhaps I will) by taking away my nest egg and taking it to a bank that doesn’t pay bonusses, but pays a decent interest on savings. I hope that many of my readers will follow this example with their bonus-paying banks.
-     I don’t want to shop at shops that are part of the Ahold organization: Albert Heyn, Stop & Shop, Martin’s, Giant and Hypermove.
-     I will prevent from doing business with any company that pays ridiculous bonusses (read: more than a normal annual salary) to their personnel for vague achievements and targets that are inviting for the appearance of moral hazard.

In this way we can make the less glamorous, but more decent and austere companies stronger and we can show the world that a world without bonusses is not an utopia.


Breaking news:

One minute after I posted my last blog, I was confronted with the fact that greediness and stupidity don’t have any borders. The Financial Times informs of the latest bonus package of RBS Chief Stephen Hester. Here are some pertinent snips. Read and be amazed…

RBS chief’s pay package rises to £7.8m

Royal Bank of Scotland has awarded chief executive Stephen Hester £4.45m of shares in a new long-term incentive package, bringing his total pay for 2010 at the state-backed bank to a maximum of £7.75m.
In two stock exchange filings late on Tuesday, RBS revealed it had paid out £28m of share bonuses and long-term incentive awards to Mr Hester and eight other senior executives. RBS is 84 per cent owned by the UK taxpayer.
The announcements came just a day after rival Barclays disclosed that Bob Diamond, its chief executive, and two of its top investment bankers earned almost £40m between them in pay, bonuses and long-term incentive awards for 2010, as well as another £77m for prior years’ performance.
In my (always very humble) opinion the British taxpayer that is on the hook for 84% of the bonus for this “gentleman” and his gang of robbers, can do the one and only thing that they are able to: remove their money from this bank and stash it in a bank with less greedy folks.

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