Bonus regimes turn negative

While many Australian financial services executives may see bonuses as an essential part of their remuneration structures, British research house Datamonitor has suggested bonus regimes may have had a negative influence, particularly where banks are concerned.

The research house said the UK bonus culture was symptomatic of a shorter-term approach to banking that has led to inefficient systems, integration policies and quick-fix cost cutting strategies among senior management.

It said UK banks could learn from practices abroad, where longer-term strategies had nurtured a culture of stability and greater process efficiency.

Datamonitor said the recent disclosure that the UK Government was essentially powerless to put an outright ban on the large state-controlled banks from paying bonuses had led to much controversy.

Commenting on the situation, Datamonitor’s retail banking analyst, Roderick Logan, said the culture of instant remuneration for short-term growth had led to more executive movement between firms – something which had been aided by an increase in the level of headhunting by executive search firms.

“Newly installed executives are immediately seeking out ways to radically cut costs in order to increase their bank’s profits and earn instant rewards,” he said.

Logan said this was in contrast with the prevailing culture among large overseas banks, where senior management tended to stay in their roles longer, which allowed the bank to pursue longer term, more coherent strategies.