Well Done Mervyn King
It is good to hear that the Governer of The Bank Of England has been critical of the financial institutions poilicies of giving huge bonuses to their staff. The ridiculous bonuses some staff receive was no doubt a significant factor in the problems which led to the credit crunch as they worked to get their bonuses rather than doing what was in the interests of the company and the shareholders.
If you were in a position where you could earn a million pound bonus for buying packages of mortgages that you had doubts about would you buy the package on behalf of your employer or would you decline the opportunity and your huge bonus? Some would do the right thing, no doubt, but it is human nature to look after yourself first.
It is so obvious that incentives lead people to do what gets them their credits, rewards or promotion rather than doing what they think might be the best thing to do. We have seen this happening in the health service where targets have resulted in hospitals which carry out operations to suit their targets rather than to suit their patients needs.
If bonuses are to be paid for success then that success needs to be viewed over the long term. How many of those in the city who got great big bonuses when their actions seemed successful have had to repay them when it turned out they made huge mistakes? Not many I suspect.
Time and again we see people sacked from positions of power for incompetence or failings yet they get huge compensation payments. Managers who get huge bonuses for actions that turn out to be huge mistakes in the longer term. Who pays for all this? The shareholders suffer and the customers pay while the failed managers are laughing as they take their bonuses and compensation payments to the bank. To me this just shows the system stinks. It is not right that failure should be rewarded so well.
There is no reason why someone doing a good job of a menial task should work for a pittance whilst others, often through luck rather than judgement, recieve enormous extra payments. Are they not just doing the job they are paid for? If they don’t want to do the job they have for the salary they are paid then they should leave. It is time the whole financial industry woke up to the fact that they are cheating shareholders and ripping off customers for no good or justifiable reason.
Small shareholders can do nothing about this. The pension funds seem to accept ridiculous bonuses as part and parcel of business even though they could do something about it and the small shareholders are more or less ignored. So, well done Mervyn King. It is good to hear someone in an important position actually facing up to the banks and pointing out the failings of their short term approach to business. Perhaps next he could encourage them to buy a calculator and learn howto do some simple sums. Maybe then we might avoid another credit crunch in the future.
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