Friday, 10 February 2012

A Friday Rantorama… Responsible Capitalism and the £££££ Culture


   ‘Responsible capitalism’ seems to be generating more widespread support across the UK.  For example although Ed Miliband, who I think was the first to initially popularise the idea, was initially criticised for suggesting things need to change (I supported him), similar ideas are now being brought forward across the political spectrum.  And this isn’t about politicians acting in a leadership role, it’s just a sign of them catching up with the mood of the nation.

So I completely understand the rise of initiatives like the Move Your Money campaign promoting consumer activism against Barclays’ bonus payments today (and of the the broader Occupy movement too).  Bankers’ bonuses are currently at odds with the idea of a fairer and more just society, which is what responsible capitalism is all about, and they need to be reformed.  Unfortunately, politicians are still playing catch-up on this one too.

And despite everything that has happened over the last couple of years, bankers still don’t seem to understand how much things still need to change.  You can see the extent of this in Stephen Hester’s reflections on having to turn down his £1m bonus last week.  Whilst Hester deserves a large amount of credit and respect for taking this decision, his actions were somewhat tarnished by his later comments that RBS executives do still deserve multi-million pound bonuses.  After all, he said, they have been doing a “jolly good job”.  I suspect that the general population, many of whom consider themselves to be doing a pretty good job as well, will feel largely unimpressed.

It’s now over a year since Bob Diamond suggested that the age of contrition needed to come to an end.  Unfortunately I don’t think that’s going to happen until bankers’ behaviour – and attitudes – change as well.

But for me, the issue isn’t absolute levels of pay.  I can understand and have some sympathy for the general reaction to the RBS and Barclays bonuses but be less fussed when Goldman Sachs announce their next round of bonuses, as from what I understand, at least these are more widely shared – eg a secretary at Goldmans does quite well from these payouts as well.  That doesn’t apply to Barclays or RBS cashiers.  There’s still an issue from a societal perspective, but from a pure organisational / HR viewpoint, there’s nothing wrong in what they do.

And I don’t begrudge new start-ups earning enhanced returns (though isn’t it about time that Google is treated as a global utility company and is globally-nationalised? hmm, back to the point…).

But for mature organisations paying people on near the national minimum wage, I don’t personally believe its helpful to provide people at the top with such vastly differentiated pay.  Why?  Because it demotivates 90% of the people in the organisation and doesn’t actually even motivate the 1% at the top.  Result: the organisation fails.

You can see evidence for this in England’s football team (yes, you know where I’m going with this).  Despite paying vast salaries for our last two international coaches (£6m a year for Fabio Capello with a potential £1.5m reward for failure bonus on top), England still lies well outside the premier league of international teams.

What’s happened here?  The extra payment hasn’t motivated extra performance (eg learning the language or culture) and the appointment of a manager who clearly doesn’t have rapport with the team he is supposedly leading has meant that he’s been largely unable to lead.

What’s important in all these cases isn’t the appointment of individualistic masters of the universe but people who are able to inspire the people in their teams.  Vast reward differentials don’t help the social connection which is needed to support this type of rapport.

You see exactly the same thing more generally in business too.  The new mood is about achievement and contribution to society not just fattening up shareholder returns.  And this is even less compelling for many people when the shareholders who benefit most are those they perceive as the super privileged cadre of ‘fat cats’ at the top.

It’s why, that whilst Vince Cable remains my favourite politician, I’m disappointed that the coalition decided not to accept the conclusions of the High Pay Commission and tackle pay differentials in their recent review.

And why I’d like to see more action from the CIPD too.  I wasn’t being completely serious in my recent post on the new CEO for the CIPD, but I would like to see the institute appoint someone who understands the new pay agenda (and gets paid a fair bit less themselves as well).

Sorry for the rant!  Now, about this young couple who have just won £45m….


More on the same theme.

Photo credit: Move Your Money


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1 comment:

  1. Hi Jon,

    While I sympathize with the attitude that so many financial institutions are still giving big payouts to people that had a hand in the financial crisis, (personally I wish those responsible were out on the street selling apples) I have to say that I wouldn't recommend putting actual laws into place that limit executive pay or bonuses for a few reasons. First, while a misalignment of incentives and organizational health in Financial Services certainly helped the crisis take shape at least as much blame lays with the the U.S. Gov't. Its regulators had the power at any time to stop the bundling of high risk mortgages, they took away the risk of failure from Fannie and Freddie (and with it, the incentive to properly weigh the riskiness of certain mortgages), and finally created an incentive to lend to low income folks (who are, unfortunately, disproportionately populated with non-white minorities) in the interest of racial equality via political/legal pressure and suggesting that there was a racist element to the denial of loans to minorities.

    Second, on a broader note, I think the goal of economic policy and individuals and orgs w/concern for the poor/disadvantaged should be on raising up the poor and not tearing down or placing a limit on the earning power of the rich. We ought to focus less on the gap between rich and poor and more on the lot of the poor as a whole. Key questions might be:
    1. Do the poor have a better or worse standard of living than past years?
    2. What is the economic mobility of the poor? How long is someone who started off poor likely to stay that way? Once someone becomes poor, are they more likely to stay that way or do they "bounce back" economically?

    Just food for thought.


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