CMI should know better - no point in meaningless comparisons

When the Chartered Management Institute (CMI) proclaims that women on average receive a lower bonus than men one has to wonder what purpose this Institute really serves. Without detailed forensic comparison on a job-by-job basis this discovery - if you want to call it that - is meaningless and can only be considered an effort to get a bit of publicity.

Hester to leave RBS by 'mutual agreement'

Replacing the CEO? No problem, George Osborne can try his hand on running a real business, and his friend/buddy Cameron can fill the role of Investor Relations/Press chief. At least they will provide good entertainment on the SS Royal Bank of Scotland (soon to be England?). And no, we take no placement fee as we want to help the taxpayer - on second thought, did Hester not have five years to groom a successor? Any properly run organisation should have at least one credible replacement for each senior executive position. After all, that should be the priority of the CEO and a functioning board.

Bureaucrats to run UK Financial Sector

The Great, the Good and the Not-so-Good are slowly taking over the running of the UK Financial Sector. After all, it the Establishment managed to run the UK Automobile Industry into the ground, why not give it a try in another sector that (still) is a leading participant in a global industry? I warned some time ago that to give regulators (and indirectly politicians who pull the strings in our cherished pseudo-democracy) unfettered control over senior appointments in Banking, Insurance and Fund Management would make it very difficult - and certainly frustrating - to manage any of these businesses. An recent illustration is provided by the fact that two candidates for the position of Chief Financial Offices at Legal & General were rejected by the Commissariat, formerly known as FSA, now split into two units, presumably to provide more jobs for second-rate pen pushers. The explanation, that candidates did not show sufficient familiarity with insurance, does not convince. Since when did a CFO of an engineering company have to show familiarity with the intricacies of machinery design? This is just another drop on the stone of bad news that will lead to a mass exodus of financial service firms once a certain pain threshold is passed.

EU Bonus Cap - Welfare for all is ultimate destination!

One may agree with this policy (EU casts wider net for Bank Bonuses, CNBC) or not - but there will be many side-effects, intended or not. Staff will migrate to other sectors, in particular private equity and hedge funds, also traditional long-only fund managers. If politicians then want to extend pay caps the next stop for professionals will be the general corporate sector. That would mean that eventually ALL business compensation will have to be controlled - by politicians with only the slightest democratic legitimacy (Has anyone anywhere had a chance to vote for these measures? Does anyone even know his 'representatives' in the national or European Parliaments?). All this and the question of migration to areas outside the control of Eurocracy is completely left open. We might as well hand all our salary to politicians and just receive vouchers for our daily need - Welfare for all is the destination!

Commerzbank defeated in Bonus Fight

All managers involved in employee compensation will be well advised to study the implications of this protracted legal case (see here and here). When senior managers of Dresdner Bank in London tried to pacify members of staff that were unsettled by news that Commerzbank was about to make a takeover bid they did not foresee the implications of the verbal promises intended to calm the nerves of their employees. They would not have expected that two trials in the British courts would have considered their statements to be a legally binding contract that even the dramatic upheavals of the financial crisis in the later part of 2008 would not have been able to extinguish.
In a similar vein, all-too-often I find that the coordination between senior management and human resource departments leaves a lot to be desired. In addition, special deals - often verbally - are agreed with staff members that lead to further confusion and mistrust among other staff members that feel that they are discriminated against. In the case of the promises made to Dresdner Bank one could also have said (even without the benefit of hindsight!) that employment prospects during the summer/early autumn of 2008 were already less than rosy and the threatened (or feared) exodus was highly unlikely.

German Managers want banking pay limited - but not their own

A poll conducted by Handelsblatt comes to the conclusion that German Managers favour limiting pay in the banking industry but not in their own companies. How hypocritical can you be? But apart from this questionable aspect limiting pay in the banking industry would mean that only second-rate people would want to pursue a career in banking. This episode demonstrates that the question of pay - especially for senior management - cannot be tackled in specific industries but must be part of a wider solution based on sound management and moral principles.

JP Morgan: Review of the 'Whale' Trades

Nothing but a very thorough review of the losses made by the 'Whale' was to be expected but one still has to wonder how much good this report will do. Its recommendations certainly will keep a lot of regulators and JP Morgan staffers very busy in the future. But looking at the quite unstructured text in the 18 pages it contains hints at the main problem any financial institution faces: complexity and human frailty combined with a good mix of fear, risk and greed. Setting up ever more complex procedures and review bodies will only go so far and never be a perfect substitute for common sense and competent, honest and modest people.

Commerzbank wins right to appeal UK bonus ruling

This headline made me look up the details of the original court case in which a large group of employees in the former Dresdner Kleinwort investment bank were vindicated in their claim that the bank should honor its promise of a guaranteed bonus pool. This amazing quote made by Stefan Jentzsch in a town hall meeting in the winter of 2008/09 makes you wonder what goes on in the heads of Commerzbank management when he said.....".. both Martin Blessing and Michael Reuther are men of honour who will stick to the bonus commitments already publicly made. Also I could not understand how and why, for what no doubt will be just a small economic amount even if it happened, they and their senior Commerzbank management collectively would wish to destroy their reputation as trustworthy leaders ..". No further comment required I think. The irony is that it was sheer folly for Commerzbank to buy Dresdner in the first place - but in that respect the management found itself in good company as Lloyds and Bankamerica entered into similarly suicidal bids at roughly the same time when they purchased HBOS and Merrill Lynch respectively.

UBS Top Management feathers it's nest (again?)

Having just handled the beginning of the mass cull of employees in the most unprofessional way one could think of, the top management of UBS is already reported to be busy to design another dysfunctional and one-sided 'incentive' plan for itself. The fish always stinks from the head downwards and it is deplorable that despite growing disenchantment about exaggerated bonus and compensation plans for the tiny number of employees at the top of organisations the people at the helm of this bank - an institution that owes its survival to the generosity of the great unwashed public, i.e. the Swiss taxpayer - still are not 'on message'.

UBS to cut 10,000 employees

Not only does one have to ask why a large bank all of a sudden finds that it would be necessary to amputate a huge chunk of its operations it is also a step that will in all likelihood lead to even more management problems later on. Management and the Board must have been asleep at the watch for a very long time that such a drastic measure is required to bring the ship on course. Successful firms adjust staffing levels continuously - this is not only much cheaper and efficient, it is also less destructive for employee morale and customer confidence. The way that these 'restructurings' are conducted are also hugely wasteful. While the cost that is bandied about at UBS may include a lot of things that are not related to redundancy payment a large part certainly is. Given the probably inflated compensation levels one can only assume that the pay-offs will also on the generous side. A new top management and/or consultancy firm will probably suggest in a few years time that too much was cut, or the wrong sector was cut and the hiring/firing merry-go-round will enter a new stage. This will - again - inflate costs and lead to a management non-culture of revolving doors where employees are not familiar with each other due to excessive staff fluctuation. After the Adoboli case we all know where this leads to.

Citigroup: Shock about exit of CEO

That some employees at Citigroup may be in shock (Financial Times) about the sudden departure of the CEO speaks volumes about the fact that the role of the CEO in today's corporation is vastly exaggerated. While no one would deny that the decision of the leader is critical it does not mean that this is necessarily a good thing as many examples in business (and history) show. Relying on the judgement and predelictions of a single person creates risks that would be mitigated in a more collegial system of leadership.

Goldman: Internal Probe on 'Muppets' draws a Blank

We are not surprised (Financial Times). Who would commit the word to email or voice mail, let alone a printed document? That person really would deserve to be fired - not for the word but for sheer stupidity. But the problem is this: Investment Banking and Securities Dealing are full of products where the interests of the firm and the customer (we avoid the word client on purpose) are directly opposed. But this is the case in almost all businesses. The vendor wants a high price, the customer a low price. A healthy amount of competition therefore is necessary to make sure that customers get the best service. However, this also requires customers that are intelligent and diligent enough to make sure that their interests are served, i.e. do not get taken in by fancy brochures, the image portrayed by the salesman or invitations to ball games and fancy restaurants. One should always be on one's guard when confronted by sales patter but at the same time no firm will be able to survive if it does not control the urge to take advantage of its customers. This requires more than a nicely formulated 'code of conduct'. It requires constant effort from the top of the organisation down through the ranks. It certainly does not help things if top managers of financial firms pay themselves a king's ransom that is disproportionately large in comparison to the pay that those lower down the hierarchy get paid.

CEO sets the tone for any business

We agree with this statement (Who's the Best on Wall Street: Risk Management Report Card - CNBC) but want to add that the development and empowering of a team of senior managers (and good succession planning for all these positions) is as important in fostering a strong culture in any business, large or small.

Reply from M. Philippe Lamberts - MEP (Green)

while I agree with you that we have to incentivize banks to go back to their basic mission of collecting savings and using those to fund the real economy, I totally disagree with your statements on pay.

1. There is absolutely no factual or scientific evidence of a correlation between eight-figure salaries and real value creation; in this business, banking executives have basically (up until very recently, see CitiGroup case) been left to determine their own pay, getting away with whatever they dared asking for. The hypothesis of self-interest (greed if you will) driving pay schemes is I believe much more credible than one that purportedly would relate them to value creation.

2. Your statement that a 1/1 relationship between fixed and max variable pay would lead to a hike in fixed salaries remains to be proven; maybe a way for banking executives to have shareholders approve what ended up as absurdly high salary packages was precisely to have the fixed part relatively modest, so as to make size of the real total package less obvious. Those executives might have a tougher sales act to perform in front of their boards and their shareholders should they want to convert a significant part of what used to be variable into fixed pay. I definitely would like to see how they manage before I decide whether or not I agree with your statement.

3. The pay rules that are being proposed are in fact very simple : 1/1 ratio between fixed and variable; 20-fold ratio between average and maximum pay; 40-fold ratio between minimum and maximum pay. I do not believe the adjective "onerous" to reflect that simplicity and I see these ratios as more than reasonable. Administering those limits would not impose an extra administrative burden on firms; as far as I know, they do manage their payroll (with the help of effective and efficient IT systems, I would venture). It would just need them to adapt and publish their existing pay rules, which are hopefully documented. Enforcing legislation would be left to existing supervising bodies; no new ones need be created. Your mentioning of "expensive bureaucracies" gives me the opportunity of questioning whether decently equipped and paid supervising authorities would, in terms of absolute cost, come anywhere near the total impact of financial sector irresponsibility to our societies, which runs into the trillions. That said, I do not see this as an excuse not to tackle the issue of the cost-effectiveness of government as a whole and I do agree that there is still room for improvement in that area.

4. I'd also like to discuss your statement as to "the conviction that unequal incomes are somewhat suspect". On that, I would refer you to Wilkinson & Pickett's "The Spirit Level", which demonstrates a statistical correlation between many key indicators of societal wellbeing (incl. life expectancy, crime, education...) and the level of revenue equality in society. Those who claim that more inequality is beneficial to society as a whole have yet to come up with anything coming close to similar evidence proving what is, I'm afraid to say, belief rather than fact. Everything indicates on the contrary that more equal societies perform better. So I my view, what is suspect is that drive towards absurd - and self-serving - pay packages in an industry that has run amok.

5. Finally, a word on "the Chimera that any problem can be fixed by rules set down by an 'enlightened' technocrat". Beyond that statement, assuming that you agree that problems - at least non trivial ones such as the climate/resource equation or the closely interlinked private and public debt issues - need to be fixed, I do not know exactly how you would suggest to do that. As a citizen, as a democrat and as a lawmaker, I agree that trusting one's future to "enlightened technocrats" is an option that would simply lead us to disaster. I might also say that having seen how unregulated (financial) markets drive the planet and its societies towards collapse, I would not trust our future to them either. What is then left is public, open, fact-based debates leading to decisions to be made by democratically-elected people.

Now, as an author of amendments on banking industry pay, I do not see myself as an "enlightened bureaucrat". I am a politically-aware citizen, who, after a 22-year career in business, got elected and I remain accountable for my work. As you may know, I will need to face my voters in 2014 and I definitely have skin in the game, much more than any banking executive has at the moment. You will therefore understand that have little desire or interest for being lectured by such people on my societal responsibilities. It is not clear to me in what capacity you are writing to me - as a citizen or as a service provider to an industry that has a lot to account for and who stands to lose revenue if pay packages would go down. I will therefore leave the argument at that.

UBS boss hires old friend for senior role

When one reads that the recently appointed CEO of UBS hires a former colleague from his days at Merrill Lynch as Co-Head of Global Investment Banking one has to assume that the hiring old an (business) friend may give a certain amount of comfort and hope that relationships in the top management team will work smoothly. But there is always the danger that sentimental aspects cloud the judgement or that conflicts of interest impede rational decision making or sour the morale of the other team members. The big question is also why a global (?) player like UBS cannot grow its own senior managers. Once you had to be an officer in the Swiss Army to climb the management ladder at the old UBS (before it was taken over by local rival Swiss Bank Corporation) and that surely was not providing an adaequate talent pool (and led to the sorry demise of the 'old' UBS) but has the bank really drawn the right conclusion and found the right formula? The track record over the past 10 plus years speaks a clear verdict.

UBS appoints ex Bear Stearns CFO to senior role

One can only wonder, and wonder and wonder again about the Personnel Policy (if you can call it that) at UBS. Just last week someone still working there said that the people around him change constantly, there is an annual turnover rate of 70 pct. Now the firm pins its hopes on Sam Molinaro, and he is based in far away New York. Given the fate of his last employer and how long he was away from the major league - can this be any help for the once proud ship UBS? Does the bank have nobody in its ranks who could to this job?

Compensation under control?

Despite our recent positive comment on Barclays Bank we have to put out a critical comment about the compensation practices at the leading (only?) British Investment Bank. It is risible that compensation increases by 2 pct during 2011 when total headcount drops by 6000 over the year. It means that 'cheap' bank and support staff was 'cut' while expensive staff in 'Wealth Management' and Investment Banking was added. This may be an explanation but it should not be an excuse for lax oversight.

Are Bankers really overpaid?

Are all bankers overpaid? This seems to be the conclusion when reading the news on a daily basis. But reports that hundreds of headteachers in London’s schools are now receiving annual pay packages of more than £100’000 indicate that generalisations are inappropriate. Heads enjoy generous holidays, there is very high job security and there is no competitive pressure. They also have managed to escape teaching duties to a large extent. One wonders how they fill their days given that personnel turnover in most school is also relatively modest. The main problem with banker's pay is the fact that senior bankers - CEO's and the top level of management - benefit to a large extent from weak corporate governance that is endemic in all public companies. But this problem should not be used to target bankers in general.

How to avoid employment tribunals - better people management

It may well be too easy in the UK to launch an appeal to an employment tribunal but it usually takes two to tango and without passing judgement about an ongoing case I want to argue that cases such as this one underline the need for careful staff assessments before and after hiring a person. All-too-often personnel decisions are based on academic achievement or (especially in finance) the numbers in terms of P&L. The qualitative aspects of management are easily neglected in a pressured enviroment and personality clashes can quickly escalate out of control.

UBS - curious selection of new board members

What is the 'politically correct' composition of a company board? We are not sure that board members are more than an in-house management consultancy. They certainly are far removed from the real owners of the company and even the fiduciaries in the asset management world have little say in the affairs of a board. But news that UBS has appointed two women to its board - one an academic economist and the other one a lawyer - raises some questions. Given the appalling track record of economists (you all know the many jokes about economists, as for example: An economist is a trained professional paid to guess wrong about the economy) one can not be too hopeful about these latest appointments. Don't forget the lawyers though: Q: Why won't sharks attack lawyers? A: Professional courtesy. Maybe selection by eye colour would be more effective. There may be a good cause for more women on company boards but we doubt that giving in those who expect miracles from this will be proven to be right in the long run. Whether or not a bank run by economists (Axel Weber, the incoming Chairman of UBS is another one) only time will tell.