Comment & Debate Editor Ben Green takes a look at the real reason behind obscene bonuses, and has a modest proposal for making everything better
In this quasi-free market society of which we are all proud citizens, the economy runs on a simple proposition: the exchange of labour for currency. Companies employ people to make and deliver their goods or services, and in return those people are paid a set wage. These wages are ‘set by the market’ in the sense that those positions which require extensive qualifications, experience, ability and hard work will offer a larger salary than less demanding jobs. This is why bank CEOs earn trillions of pounds a year, whilst students working in Topshop earn 12 pence an hour; because whilst anyone can work in a shop, there are only a few people with experience of running international banking institutions into the ground. So whilst it may seem unfair for those of us who work for next to nothing, the logic is understandable.
As well as these base salaries, many higher-paying jobs also offer the incentive of bonuses. Again, the idea here is solid: if you perform well, and the company benefits from your performance, then you are eligible to receive a supplement to your income, so as to incentivize you to work that bit harder. Bonuses have been common in sales positions since roughly forever, where if you flog more cars, televisions, butter knives or whatever your organisation happens to sell, the company will reward you for bloating their bank balance with a slightly larger slice of the budget. So what’s the problem, surely there can be nothing more economically fair and sensible than companies offering their employees incentives for performing well? After all, everybody benefits; the company only pays out if it sees a visible rise in given performance indicators (profit, brand recognition, processing speed, customer satisfaction etc.) and the employee gets a little extra cash to spend on another hooker.
The problem is that bonuses have ceased being a reward for achievement and have instead become regarded by those at the top as simply part of their pay package, to which they are entitled regardless of their actual performance. It is only recently, in our times of austerity, that such pay has become a headline issue; but this behaviour has been growing in the City for years. Excesses in the vein of Adam Applegarth’s £760, 000 in 2007 for successfully demolishing an entire bank, or the recently mooted £366, 000 bonus for the manager in charge of Europe’s worst rail system are regularly blamed on a lack of shareholder input and oversight. But the real problem here is a refusal to contemplate the idea that we should be rewarded only for what we achieve. It is in this climate that bonuses cease to be a bonus and become an entitlement.
I would argue that this problem is not limited to boardrooms, but that the sense of entitlement at play echoes at all levels of employment. I firmly believe that the wage-for-labour system should be entirely overhauled, so that employees are paid solely on the basis of what they achieve; if you are effective then you are rewarded, if you are not then you need to find something more suited to your talents. Because whilst there are CEOs like (Mr) Fred Goodwin who deserve to be kicked onto the street rather than rewarded, there are others like Sir Philip Green or Sir Stuart Rose who genuinely add value to their companies and so earn their gargantuan payslips. In the same vein, we have all had experiences with useless and unhelpful shop staff, who at the end of the week are paid exactly the same amount as the most friendly and helpful of employees. How on earth is it fair that you can be awful at your job and do nothing to assist the company which hired you, yet earn just as much as someone who devoted themselves to their career and produces excellent results?
Salesmen are already remunerated on the basis of how much they sell; I have even worked for a company where the pay was entirely on commission: i.e. you only get paid if you sold. This angered many people, but to me is the model of how businesses should work. If you were able to sell at that company, you could make a fortune, if you weren’t able to sell, you made nothing; and if you cannot sell, why the hell are you a salesman? Equally, if you cannot effectively manage a company you have no business being a CEO and if you can’t be nice to people regularly, you should not be in customer service. I am all for a national minimum, living, wage, but any remuneration whatsoever above this should be strictly on the basis of how much you deserve that pay.
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