Monday 16 January 2017

Maeve Dineen: We need to fix bonus culture, but keep the incentives

Published 04/07/2011 | 05:00

WE heard a lot about bonuses last week and we are going to hear much more in the months ahead. Unfortunately, much of what we hear is rubbish -- a knee-jerk reaction by the coalition government trying to score points on populist issues rather than tackling the real rot in the economy.

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Let's start with the word bonus. A bonus should be a payment made for better-than-average performance. Nobody should be able to count on a bonus every year. If a payment is made regularly, it is salary and to pretend otherwise is plain stupid.

Much of the debate about bonuses hinges around the persistent misuse of the word in many parts of the public sector and the financial services sector.

The most effective kind of bonus is also the rarest: a public payment made to top employees for meeting certain, quantifiable targets that have been agreed in advance and which encourage all employees to promote the entire organisation's interests.

The problem here in Ireland is that most bonuses are secret, the targets are usually secret as well and most importantly of all, the targets do not chime with the long-term interests of the organisation.

Bankers have come in for much criticism over their bonus culture and rightly so. Bank of Ireland, a company listed on the stock exchange and still owned by stockholders, is a good example. We don't know who receives bonuses because the bank won't tell us. We don't know because the names are not a matter of public record.

We also don't know why they receive the bonus or what long-term interests are being served. What we do know is that the bank, like most of the other Irish banks, has lied about the bonus payments, and that the bank has claimed it is contractually obliged to make payments.

One of the major issues is that the bonus system has been dumbed down like almost every other element of modern life. We have adopted the 'one for everyone in the audience' attitude to bonuses regardless of work rate of the individual.

There was a time when line managers had to pick one or two hardworking employees every year and give them bonuses while telling the remainder that they would just have to work harder if they wanted a bonus next year. Some companies still insist that managers cannot give a bonus to the bottom 20pc of their teams but most people in financial services now expect a bonus regardless of their work.

It gets tricky of course when a company is losing money but certain employees perform well, saving the company millions by putting in hard work and long hours. This is where the public debate is losing touch with reality and the public's self interest.

Taoiseach Enda Kenny's sweeping statement last week about bonuses not being acceptable completely misses the point. The bonus isn't the problem; it's the lack of rules and transparency surrounding it that causes the damage.

Somebody who saves the nation €10m by doing something far beyond their pay grade should get a bonus even if most of her colleagues don't. But those colleagues need to understand why the payment is being made and why they are not getting anything similar.

This is part of the reason why I believe some people such as those in the National Treasury Management Agen-cy and some of those working for semi-state bodies deserve a bonus despite the dire straits we find ourselves in.

There are people in all parts of the economy working harder than they have ever done before and doing a magnificent job in the teeth of this recession. They deserve recognition. But they should be measured by easily understood targets that are made public and are easily verifiable.

There is little doubt that bonus payments make sense in almost every corner of the workplace. While most employees are driven by a mix of goodwill, inner motivation and survival instinct, bonuses play a major part in motivating staff.

Whether we are teachers and nurses or hedge-fund managers and bankers, most of us respond well to incentives. This is an immutable law of the workplace. The Government would do well to heed that law in the months ahead.

Irish Independent

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