"We are all in this together..." Yeah, right.

[MidnightinMoscow]

RBS bosses bonus agreed by our wonderful government.

This is the sort of thing we need to be getting angry about.

No, because that would be bloody stupid. Just as the assertion that 'anyone can do it' is bloody stupid. Like any industry, there will be others in the organisation, one or two of whom are suitable for promotion to the top slots. But not many.

@Flatbread

What I'm saying is that what was agreed should be paid. But if we want to now renegotiate on new terms then that's fine.

The same applies to public sector workers and their pensions. So what was agreed right up until recently should be paid in full.

What would be unfair (and illegal) would be to agree a set amount then later change our minds.

Let's say it was your company. Your boss says "Hey Flatbread, if you sell 1000 widgets then i'll give you a bonus of £x". You sell 1000 widgets but then your boss says "Actually I'm not going to give you the bonus, everyone else thinks it's a bad idea". I think you would see that as unfair.

But if your boss wanted to say "Right here's your £x but next year, your bonus will be smaller cos of " then that's perfectly acceptable and you can either continue to work or not based on whatever you decide.

Actually, most contracts would say if you sell 1000 widgets and the company is doing well, you could get up to xx bonus. Unless you are on a commission (in which case you usually get no salary or a very small salary) no company fixes a bonus amount solely based on the employee's performance. It is always dependent on how the company is doing. So if the company is running a loss, I would probably not get a bonus, or a very small token one, irrespective of my hitting targets.

I just don't see why anyone in RBS should get a bonus for doing their job if they are already paid a £million salary. What value are they creating to justify that amount, let alone the bonus...

As I understand it RBS booked a £2b profit last quarter. They have been making losses previously.

"What value are they creating..."

In 2006 RBS pre-tax profits were £9.2bn meaning a significant contribution to the Exchequer. In the last couple of years while they have been making a loss we've had zero in tax from them. A CEO that has put RBS back into profit has created tangible benefits for all of us, not just the 27,000 people who rely on good leadership at the bank for their jobs. The bonus is in the form of shares which, any RBS shareholder and pension fund manager will tell you, plummetted at the time of the crash. As the taxpayer owns 80% of those shares, if the CEO gets them back to an upward trend, not only will he benefit but we will all benefit when they are eventually sold and the money returned to the Treasury.

A lot of value.

As CogitoErgoSometimes points out the bonus is being paid in shares, not cash. If the bank collapses (again) and the shares are worthless he won't get a bean. It is a good incentive for him to perform his job well.

Why is he worth that much money? Because he has a very specialised set of skills and track record which are valued highly in that industry and which should ultimately help the bank to generate substantially more than that in terms of value.

A bit like a Premiership footballer or Oscar-winning movie star. They earn a lot of money because they are different from the rest of us and very good at what they do.

Or perhaps those who think 'anyone can do the job' should try slagging off those professions too.

First, there are not only one or two people who can run an organization successfully. Ths is bullshit. I have provided strategic consultancy to the board of top companies in the world and there is a large pool of qualified people who can do the job. And leadership skills are fungible, so you can use leaders from across fields. This is not a specific coding or trading job that needs a very narrow, specialised skill set. The government could just as easily get sr. management from John Lewis or Apple or Google or anyother successful organisation to do the job. In fact that is what was done in the case of GM to turn it around.

Second, RBS needs to repay the tax payers before awarding bonuses to management. The idea that RBS turned a profit last quarter is bullshit. If you have ever advised companies on turnaround startegies, you will know that laying of people comes at a cost. But the cost of their layoffs (lump sum payments and benefits) are always deferred to a later accounting date, and net there is usually no gain for atleast two to three years after layoffs, from a financial perspective. Plus, in RBS case, they have a huge exposure to Italian government bonds. These are not marked down, from what I understand. So, want to bet that we start seeing RBS suffer losses later in this year due to 'unexpected events in the Eurozone and one time write-offs'?

It is easy to pretend to create value through lay-offs. It is much harder to create actual value by providing tangible benefits to consumers and create jobs. That is why entrepreneurs should be rewarded as they create and generate value for all of us in society.

It is easy to pretend to create value through lay-offs. It is much harder to create actual value by providing tangible benefits to consumers and create jobs. That is why entrepreneurs should be rewarded as they create and generate value for all of us in society. Steve Jobs is of a a rare breed, not Hester. Hester is a parasite at worst or a normal CEO at best, nothing special. It is not that hard to fire people and spin off assets. That is what vulture PE firms have been doing for ages, and they are no bunch of brain surgeons.

Finally, down the ages, people have been creating and innovating without expecting huge payoffs. Beethoven and Einstein did not create because they were paid big bonuses. Nor did the bankers of the 1970s and 80s who received large, but not gigantic salaries and no bonuses. There are a large number of people whi are good leaders and who are not driven by earning mega bucks, but by delivering value to society.

I really cannot believe that some of you are buying Osborne's mumbo-jumbo support for the crap banking bonus system and greed that has brought us all to financial ruin.

the so called profit and value that Hester and RBS is creating? read on

RBS in profit - due to DVA (you can see the balance sheet at [[http://payment.onl
ystrategic.com/Articles/featured/id/60905/key/984b9617c8e5b0e5806fd666d6bc0250]]
Royal Bank of Scotland reported Q3 net attributable of £1,226m (?1,424m $1,961m ¥153.1bn Y12,430m) and a 9 month LOSS of £199m (?231m $318m ¥24.9bn Y2,018m). There were £1,737m of one off and other items. The main positive in this was £2,357m Debt Value Adjustment Before the one-off items the operating profit was £267m versus £726m in the year ago period. The reduction in underlying profit arose from the fall in both interest and non-interest income being larger than the fall in expense achieved.

So, the profit is £2 billion, and the main positive contributing to it is £2.3billion DVA.

Now you might ask, what is DVA? best explanation is on wealthcycles below on how Accounting Wizardry Boosts Bank Bottom Lines:

In the latest mutation of standard accounting practices, the big banks are now counting on the plus side of their balance sheets the fact that their solvency is so in doubt that, were they to be forced to buy back the debt they have issued, they would have to buy it back at a discount. The accounting trick, as reported by CNN Money?s Paul LaMonica, is called a debit value adjustment, or DVA.
Here's how it works: Investors are nervous about the health of many top banks, particularly their exposure to Europe. As a result, the spreads on credit default swaps (remember them?) for these banks are widening. That's not a good sign since credit default swaps are essentially insurance policies against insolvency.
Enter the magic of legal accounting. Banks are benefiting from being hated. If they had to buy back debt today, it would be at a discount. They then book the gain as a paper profit.
It may sound incredible to those uninitiated in the parallel universe of mega corporate finance, but the world?s largest investment banks are able to use DVAs?a measure of just how dangerous investors view their exposure to bad debt to be--to significantly boost their bottom lines.

flatbread

What is the problem with DVA? In an environment where credit spreads widen, their own debt tends to fall in value. They can then buy that debt back at that value if they wish. In reality the positive DVA will be offset by a CVA loss adjustment from the deterioration of their counterparty's credit quality.

You can't expect a bank to only account for the negatives and never the positives!

It's funny, isn't it, this whole PRP issue. In some fields, you are expected to work for a basic PAYE salary, and the rest of your remuneration is supposed to be spiritual, coming from pride in the job, vocation, altruism, a sense of duty and responsibility, and so on.

In others, you get bonuses just for turning up to work and doing the job you are paid to do anyway.

The bottom line is that it would seem that Heston's T&C's were agreed in 2009. Now it doesn't matter whether the govt should or should not have agreed to these terms. The fact is that they did and they were accepted.

So now wind on a few years, the guy has met the conditions set so he should be given the bonus he's been promised. Whether you or I think it's obscene is irrelevant. It was agreed years ago and it would be unfair to change it just for political expediency.

The govt now can if it likes change renumeration packages going forward and the management can choose to accept these or not.

My DH has watched several of the perks attached to his employment being withdrawn or eroded - I say again, what makes finance any different?

"what makes finance any different?"

Finance is no different to any other industry in that there is an internal payscale. Every industry operates similar rates of pay because, when companies are trying to recruit or retain staff, they have to benchmark their jobs against those in similar businesses. Some fields are notoriously low paid because margins are low and there is a large pool of people to choose from. eg. hotel/catering, retail. Finance, like IT and law happens to be highly-paid because margins are high and the pool of qualified people is relatively small. There's rarely any correlation between the 'worthiness' of a job and its price.

Interesting article in FT on this. Sorry I am posting from my iPad, and it appears a bit messed up, but readable

/www.ft.com/intl/cms/s/0/b94b5df0-4912-11e1-954a-00144feabdc0.html#axzz1l2XC34JQ

January 30, 2012 7:26 pm
Forget the big bonuses; a pay squeeze is coming
By Gillian Tett
Say the words ?banker pay? to your average voter or politician and these days you will hear an angry hiss. After all, nothing stirs up so much resentment against modern capitalism as the sight of financiers still reaping fat rewards despite failing institutions. On Sunday, the public outrage at Stephen Hester?s bonus persuaded the Royal Bank of Scotland chief executive to turn down a pay award (£1m) that would be considered miserly by other bank bosses in the UK and the US.
However, is it possible to imagine a world where banking pay ? and banking ? is radically slimmed down? Anybody living in countries such as Japan or Sweden would undoubtedly say ?yes?; in those economies, foreign financiers? salaries appear bloated. But perhaps a more interesting ? and relevant ? intellectual exercise is to peer at the US through a long historical lens; to imagine, if you like, a banking pay version of Back to the Future.
More

ON THIS STORY
RBS in talks to revise bonuses
Ten days of turmoil end in calm capitulation
Hester gives up £1m bonus
City culture comes under fire
Business blog Hester is exceptional
ON THIS TOPIC
Miliband denies ?witch hunt? against bankers
RBS chief bows to inevitable
Hester focused on finishing tough job
Miliband attacks PM over RBS bonus
FROM GILLIAN TETT
Stressed? It?s the new normal
Europe could learn from US debt scramble
The US The paradox of 2012 a defensive, short-term America
Pick your channel, choose your news
Take a look, for example, at the work by Thomas Philippon and Ariell Reshef, two US-based economists. They have researched trends in banker pay over the past 150 years and found that, in the early 20th century, financial sector pay relative to the rest of the private sector was roughly at parity (for, crucially, employees with similar levels of education). But then it rose sharply until it hit 1.7 times in 1929, the year of the Wall Street crash.
That echoed a bigger increase in finance: the total cost of financial intermediation (all wages and profits paid to financial firms) had reached 6 per cent in 1930, up from just 2 per cent in 1870, according to separate research that Mr Philippon recently showed to the Federal Reserve Bank of New York.
After the 1929 crash, this trend did not immediately reverse: for several years, financial pay remained high because pay in other parts of the economy fell and some bankers traded cannily during and after the crash. However, in the late 1930s the ratio slumped back towards parity and stayed there for the subsequent three decades; in the years following the second world war, American bankers were paid roughly the same as other professionals. But from the the late 1970s onwards, a new cycle turned: the total cost of financial intermediation jumped to 9 per cent in 2010 from 4 per cent in 1950. The ratio of financial sector pay to pay in the rest of the private sector hit 1.7 times in 2006 ? in a delicious irony, the same level as in 1929.
It is a matter of fierce dispute why banker pay swelled. Financiers are apt to blame it on the increased importance and complexity of finance: in a world of technological change and globalisation, so the argument goes, you need bright, highly skilled bankers. Many economists such as Mr Philippon, however, reject that. He reckons at least half of the pay jump represents ?rent seeking? (skimming off fees), not innovation. ?The technological development of the past 40 years (with IT in particular) should have disproportionately increased efficiency,? he observes, noting that in companies such as Walmart, ?efficiency? has reduced wages.
The crucial question, though, is whether history might repeat itself and produce a big pay swing, as in the post-war years. Right now, it seems hard to imagine; after all, the experience of the past few decades has made it seem almost normal for bankers to be highly paid.
But as this year?s bonus round comes to an end, there are some hints of change. The sector is shrinking: an estimated 60,000 jobs were cut last year. Staff are being paid in stock deferred over a longer time, and pay appears to be falling. Morgan Stanley, for example, has declared plans to cap the amount of bonus that its staff can receive immediately at $125,000; Goldman Sachs has announced that it is cutting 2011 compensation by 21 per cent; JPMorgan Chase has cut the total pay pool for its investment bankers by 36 per cent year on year. Indeed, the consensus among bank executives in Davos last week was that total compensation for mid- to senior-level employees in 2011 was about 30 per cent lower than 2010 ? and perhaps 60 per cent below the 2007 peak. ?There is a big change now,? claims one Wall Street CEO.
Now, this decline is still far too small to pacify critics. And it remains tough to calculate the precise squeeze, since banks pay their employees in different ways and ? crucially ? many financiers are leaving regulated banks for work in shadow banks, where pay is even more opaque.
But, what is clear is that the squeeze almost certainly has further to go, as regulation bites, deleveraging takes hold and western economies ail. It probably will not take the pay ratio to 1950s levels; technology now enables financiers to hop across borders and around rules, skimming fees in opaque ways. But ? just as 70 years ago ? a cycle has turned; albeit slowly. By 2017, bank pay could look very different from 2007; and modern capitalism will look all the better for it.

I had an interesting experience when a couple of hedge funds started sniffing around me recently. I realised that even the merest whiff of competition meant that I would be able to play them off very effectively by pretending other firms were seeing me with a view to offering employment. I could actually be more or less making this up, and they would still feel compelled to start bidding up my salary for me.

In other sectors that I have worked in, this is a lot less effective as a strategy for bumping up your pay - it works a little bit, but only within something like a £5k margin.

I reckon the sector is full of insecure gossips who have completely lost any sense of how the real world works outside their bubble. They are using the same arguments to justify artificially high pay now as they did before the crash, implying we are all too stoopid to understand the alleged complexity of what is going on. They award themselves bonuses at all levels in this industry even if their firms don't make any money for clients some years, or demonstrate lacklustre performance. And ultimately it is getting awfully expensive for the rest of us.

I say pull the rug from under all this globally.