There have been some fascinating pieces in Joris Luyendijk’s Voices of Finance series, Earlier this week, he published an interview with a former head of HR at an investment bank.
For the past year I have been trying to get banking staff working in human resources to talk to me. The inspiration was this revealing interview about what it’s like to fire people. It proved very, very hard to find other people in human resources to speak to this blog, perhaps because it falls to them to fire bankers for secretly speaking to journalists?
He should have asked me. I know a couple of people who might have been prepared to spill the beans for the price of a few drinks.
Anyway, the interview is a must-read. Kilian Wawoe, formerly of ABN Amro, starts off, unsurprisingly, on the subject of bonuses:
People ask, when will bankers have enough? But it’s not about the money. It’s a highly addictive status game. Pay marks your status in the organisation. This is why there is no saturation point.
“I remember giving a €2m bonus to a banker. It was mostly in options but still. His first question: ‘How much is my co-worker getting?’.
Spot on. This is what a lot of people don’t get about the banking culture. It’s not about what you can buy with the money, it’s about the status that the money conveys. The numbers in your pay packet tell you and, more importantly, everyone else, where you are in the social hierarchy. They are the equivalent of pips on your shoulder or leaves on your coronet.
Which is why curbing bankers’ pay misses the point. Conventional wisdom says that high bonuses were among the main causes of the banking crisis, although some studies have cast doubt on this. But even they were, it wasn’t the size of the bonuses that mattered, it was the size relative to everyone else’s. Failed banks HBOS, Northern Rock and Bradford and Bingley were not among the highest bonus payers in the industry (bonuses are barely mentioned in the parliamentary report on the HBOS collapse) but they still managed to create aggressive, sales-led cultures where high risk-taking became the norm.
In sales-led cultures, and especially in banking, people compare themselves to others around them. It’s what the person doing a similar role or sitting at the next desk is earning that is really important. Where do you stand relative to the people you see every day? It doesn’t matter whether the bonuses are in thousands or millions, it’s all about relativity. You could pay bankers in jelly babies and they would still be down at Corney and Barrow every week comparing the size of their packets.
“That’s Giles Farquharson-Smythe. He’s a 2,000 jelly baby man.”
“What? He’s a complete twat! First thing tomorrow, I’m going in and telling them I want 2,500.”
Here is Kilian Wawoe again:
Banking is a game and bonuses are the prize, like medals for athletes. Bankers want to compete, and will continue to do so even after we alter the playing field, for instance by drastically cutting or even abolishing their bonuses.
He’s right. Whatever the EU bonus cap is supposed to be for, it is unlikely to make much difference to the behaviour of bankers. There are still some things that need to be done to make banks safer but this isn’t one of them.