Performance Management Solutions

I actually heard a politician say something sensible this weekend! It was Alistair Darling, the UK Chancellor, and he was echoing something President Obama said last week. What caught my attention was the statement “there is nothing wrong with rewarding success, but there has to be a penalty for failure”. I’m afraid that, after that, the standard dropped again.

Like most western and developed nations, both the administrations in the UK and the US have stimulus packages in place (if not yet delivering) and both have found their proposals under fire from the opposition politicians (how unsurprising is that!). The issue that seems to enrage the opposition and the populace equally is the idea of bonuses for top bankers – especially those in the banks that have had to take government (tax payer’s) money in the current crisis. On the one hand, there are the free-marketeers who are saying that top bankers should get their bonuses and then there are the socialist reactionaries that say they shouldn’t.

Let’s take a closer look at the issue.
(1) We live with the rule of law and under the law of contract, some of these bankers are contractually eligible to receive bonuses.
(2) Those lower down the banks who were not culpable for the disaster, or worked in areas completely separate from the business units that took such high risks with such toxic assets that they crashed the bank, should not be punished for doing their job well.
(3) If people are punished for doing well, then they will leave the company thus further stripping it of assets and resources. (That is, if they haven’t already been fired in a panic-driven cost cutting exercise that never seems to touch those actually responsible for the disaster.)
(4) There has to be a penalty for failure, but it is straight stupid to punish success.
(5) The government is right to attach constraints and conditions to the loans they are making to the banks and these should, rightly, include a restriction on the salaries and bonuses of those culpable for the disaster.
(6) Where the government has virtually nationalised the banks then they should, as the new owners, set the pay and conditions of their employees – but if they set these too low then they wont attract the skills and quality they now desperately need.

Voilà! There are pros and cons to all this but if we step aside from the cut and thrust of the political duelling and consider the ethics of accepting a huge bonus when you’ve just crashed the bank, then it is almost a ‘no brainer’ that senior managers who have direct responsibility, or even indirect but evident responsibility, for the disaster should now make a public ‘mea culpa’ and publicly renounce their right to their 2008 bonus and all future bonuses until their performance is again at an acceptable level.

Will they do it? Of course not! Greed over rules sense.